The Shanghai Market Volatility Decomposition Of Empirical Research

Since the establishment of the Chinese stock market,it has been playing the role of adjusting the capital flow in the China.But the short period of its development limits its depth and width,which reflects on the high volatility of the market.Back to the year of 2001,Shanghai Stock Index reached its peak of 2341 point,and began its bull market for almost five years.In the year of 2006,the index went up consistently despite of the argument of bubbles in the market and finally reached up to 6000.From 1000 point to the level of 6000 point,market took less than one year.As a result, volatility becomes the focus of researchers.In domestic academic research area,most professors focus on the whole volatility but ignore the idiosyncratic volatility.But Campbell,Lettau,Malkiel and Xu(2001) uses a model to break down the volatility in the term of the market,industry and firm level,and then put their theory into the American market.This paper adopts this approach to study the volatility of common stocks in Chinese market,taking Shanghai A share stocks as sample to reflect the Chinese stock market.It is found that all three sub-volatility have declined,and industry and company volatility are important to the volatility of the whole market.Factors that maybe responsible for the findings are suggested.The first part puts forward the question and outlines the structure of the whole paper.Then introduce the history of the Shanghai stock market and its development. The second part introduces the related research and the basic model.In the third part, the model will be put into the practice of Chinese market in the level of market, industry and firm volatility.Fourth and fifth parts run tests related to the three sub-volatility series in the term of tendency,correlation,and influence and discuss the possible reasons behind the result.The last part will draw the conclusion and findings, and suggest the possible future research.