Research On Volatility And Risk Management Of Chinese Stock Market

Volatility is one of the most important characteristic of stock market. It meansuncertainty and risk. At present, it is of great significance to research on volatility andrisk management of Chinese stock market. First, as a emerging stock market, Chinesestock market has abnormal volatility in sharp contrast to the developed stock markets.Average volatility of Chinese stock market is much higher than developed markets. Also,the frequency, magnitude and duration of Chinese stock market crashes are far higherthan developed stock markets. Abnormal volatility means abnormal risk, thus it seriouslyaffected healthy development of Chinese stock market. Second, along with rapiddevelopment of Chinese economy, financial reform and opening will be furtherimproved. At the meantime, the increasing international link also renders Chinese stockmarket more prone to international shocks. Accordingly, it is of great importance toresearch on the cause of the abnormal volatility and the risk from international shocks ofChinese stock market aiming at improving its risk prevention mechanism.Basing on volatility comparison between Chinese stock market and developed stockmarket, this paper theoretically and econometrically analyzed the cause of the abnormalvolatility of Chinese stock market. The conclusion is that the main causes of theabnormal volatility of Chinese stock market are government intervention, endogenousuncertainty and stock market speculation. Also the risk from international shocktransmission of Chinese stock market is theoretically and econometrically analyzed, theconclusion is that international shock transmission remarkably affected Chinese stockmarket. Consequently the measure to improve risk management of Chinese stock marketis put forward.Basing on the existing research papers, this paper has some theoretical innovationsand econometrical innovations. The theoretical innovation is that endogenous uncertaintytheory is first introduced to explain the abnormal volatility of Chinese stock markethence making the analysis of abnormal volatility more reasonable. The econometricalinnovation is that state space model is introduced to improve the classical test modelmaking the econometric test more practical and more convictive.