Study Of Volatility In Shanghai And Shenzhen Stock Markets

This paper is an empirical study on the volatility of Shanghai and Shenzhen stock markets based on the divided information and EC-EGARCH-M model.Stock market is full of uncertainty.The rapid flow of information and capital leads to frequent price changes in stock market,which in turn results in market fluctuation.Fluctuation of stock price is a normal characteristic of stock market.Normal fluctuation of stock price can promote the activity and make market transactions to be sustained. Nevertheless, dramatic and frequent fluctuation can increase risk of market,and impact investors' judgments, even seriously affect investors' confidence.Being an emerging market, China's stock market is characterized by high risk of market fluctuation. Therefore,the research of characteristics of Shanghai and Shenzhen stock markets' fluctuation has ,to administrators and investors, most practical significance.This paper does an empirical analysis on the Shanghai and shenzhen stock markets' volatility based on the information decomposition and EC-EGARCH-M model.We start our discuss from six parts by sequence.At first,this paper introduce background, significance,thought and content of our research.Secondly,we generalize the current research results in China and abroad. In the part three, this article systematiclly introduce the meaning of volatility, type, typical characteristics and measuring methods,they lay the foundation for the next researchs.Then we analyze detaily the feature and application ranges of traditional fluctuation models—ARCH family models' features,and consider the model which fit Chinese stock markets'volatility characteristic.In the part five,according to shanghai and Shenzhen stock market' features , the paper banish the method that previous researcher take turnover simply as information variable,and constructs market confidence index and market activity index to serve as inrormation variables,about model,we consider the fact that Conditional variance can affect the rate of return.At last,we improve the model furtherly, and apply mainly cointegration analysis method to the modeling process, at the same time,and consider the asymmetric impact of information.Based on the above considerations EC-EGARCH-M model is established.In the all models we use Shanghai Composite Index and Shenzhen Composite Index as experimental data. Results show that the two information variables have absolute effect on the market;Market activity index has a character of asymmetric effect;the market confidence index of Shanghai doesn't have an asymmetric effect,but the sluggish condifidence of Shenzhen market will magnify volatility;market activity index and the coinergrating residuals are the two important explanatory variables for the conditional mean equation and the conditional variance equation;there are two-way volatility spillovers between Shanghai and Shenzhen stock market,besides,there are characteristic of volatility clustering and asymmetry in two markets.