Study On Asymmetric Reaction Of Chinese Stock Market

Asymmetric reaction of the stock market refers to that good and bad news of the same degree make influence of different degree on the stock market fluctuations. Studies of foreign mature markets have shown that influence of bad news on the stock market fluctuations is greater than one of the same degree good news. This phenomenon is called "leverage effect." Our scholars' studies have found that the phenomenon of asymmetric reactions also exists in our stock market. However, our stock market is an emerging market, its development is instability, this has led to inconsistent findings in different periods. This article studies both Shanghai and Shenzhen stock markets' asymmetric response in different market conditions. Specifically, we adopted TARCH model and made an empirical analysis on the stock market data from 1997 to 2008. The result was that the asymmetric reaction existed and expressed as "leverage effect." Afterward, we chose a complete bull and bear market phase of the total sample, using the same method for testing. The results showed that: both markets existed asymmetric reaction. In a bull market, the impact of good news was greater than bad news, and in a bear market, the opposite was true. This showed that the asymmetric reaction of our stock market was concerned with the market sentiments.Based on the above empirical test results, we found that investor sentiment likely to be an important factor of asymmetric reactions. In order to test this reasoning, we made reference to some concerning research literature, but there was little literature concerning the relationship between investor sentiment and the stock market volatility. So this article adopted TARCH-M model again and introducted a new non-symmetric key, making the stock market's ADR indicator on behalf of investor sentiment, empirically tested the spillover effects from investor sentiment's volatility to the stock market's. The results showed that: the volatility spillover effect was existed, and the affect from investor sentiment's volatility to the stock market's volatility was asymmetric. Investor sentiment was an important factor to make our stock market's volatility non-symmetrical.In the last of the article, we summarized the empirical findings obtained earlier, and gave some relevant policy recommendations combining with the actual situation of our country.