China's Stock Market And Gold Market Volatility Research

In the development process of China’s financial market, multi-level markets and diversified investment products are important means to achieve the scale and efficiency of China’s financial market too. In2008, financial crisis happened, China’s stock market felled unilaterally, now regulates weakly. Investor confidence suffered a serious blow; people have to draw funds for other investment. Nowadays, risk continued to increase in the stock market, inflation is in the high, The United States long-term sovereign rating was forced to downgrade, European debt crisis unresolved stilly, we see that the price of gold rise crazy, historical record has been renewed in the short term. Gold as a "safe haven" role play an increasingly important role in the storage of wealth and financial investment. The stock market and gold market is an important part of the financial markets in China, the benefits and risks of stocks and gold as two.important investments are the focus of most investors, the volatility of the stock market and gold market has become a focus of the study.In this paper, we research the daily closing prices of shanghai composite index and gold Au9999, sample data are from November1,2002to November1,2011. The split share reform initially completed and the turning point of the stock market trend as a reference principle, October16,2007as the dividing point, we divide the sample into two parts, sample data for November1,2002to October2007,16is period1, sample data for the October17,2007to November2011is period2. We firstly use qualitative analysis to study the development status of the stock market and gold market, as well as the effect factors of price fluctuations, and discuss theoretically the volatility pooling, fluctuating asymmetry and spillover effect of stock market and gold market. Then, through establishing GARCH family models, this paper studies quantitatively the three characteristics of the return volatility. The results show that:(1) The daily return series of stock market and gold market don’t follow a normal distribution, showing Leptokurtosis. And they have significant ARCH effects, that the volatility of returns has significant volatility pooling.(2) Stock market is more volatile than the gold market in China. In period1 the stock market has a positive mean income, period2has a negative mean earnings; The gold market in period1and2have positive mean income. In addition, average daily rate in the gold market is greater than the stock market in the entire sample period.(3) Non-linear GARCH model, which is better than the linear ARMA model, fit the volatility pooling in the stock market and gold market. Also, Non-linear GARCH model has relatively good statistical properties;(4) GARCH (1,1) model can eliminate the conditional heteroskedasticity of the two markets. The sum of coefficients of ARCH term and GARCH term in variance equations is nearly equal to one. This indicates that the impact of shocks on conditional variance is highly persistent. The sum of coefficients of ARCH term and GARCH term in variance equations of Stock market is greater than the sum in gold market, it appears that China’s stock market is more vulnerable and the persistence is more long-term;(5) Fluctuating asymmetry of stock market is not consistent in different times. In period1, the stock market don’t have a significant "leverage effect", in period2and the entire sample, there are a significant "leverage effect"; The gold market has fluctuating asymmetry in each sample period, the difference is that the volatility of stock market caused by bad news is larger than that caused by good news on the equal basis, while the volatility of gold market caused by good news is larger than that caused by bad news on the equal basis.(6) In period1, there is not volatility spillover effect between stock market and gold market. In period2and the total sample, there is volatility spillover effect. But it is asymmetrical and one-way. Fluctuations in gold market can cause fluctuations in stock market. On the contrary, stock market volatility can’t lead to fluctuations in the gold market. In the total sample, there is volatility spillover effect, which largely reflects the spillover effects in period2.Features and innovations of this study are mainly as follows:(1) The paper analyzes the volatility spillover effects between the stock market and gold market. Domestic and foreign scholars analyzed independently the volatility of the stock market and gold market, and the volatility spillover effects between the stock market (the gold market) and other markets, however, none study currently the volatility spillover effects between the stock market and gold market in the domestic.(2)The paper uses the GARCH family models, by comparison with the linear model ARMA, the advantages of GARCH models has been validated further, which increase credibility of the results of empirical research. At the same time, we raise a number of possible errors about the use of models, that provides a reference for the later using of the GARCH models.(3) The article analyzes qualitatively the common factors affecting price fluctuations of the stock market and gold market, and study comparatively fluctuating asymmetry of the stock market and gold market. Currently no article analyzes the similarities and differences of the leverage effect.(4) In this paper, we analyze the volatility of the stock market and gold market yields in different economic backgrounds. After16October2007, our stock market entered a bear market from the big bull market, at the same time, the split share reform has initially completed and the financial crisis is in the dormant period. Basing on the bull stock market and bear, we divide the time into two ranges, and then study the volatility comparatively. This is useful to discover the different characteristics of volatility in different market.