The Chinese GEM Volatility Based On Market Industry Sector

Industry characteristics has been the attention focus of investors in the stock market. Having moreinter-industry portfolio investments can avoid risk effectively. Since the Chinese GEM marketopened, theorists have high enthusiasm to study it. However, because there are only a few publiccompanies in Chinese GEM, the Shenzhen Stock Exchange hasn’t published the GEM industryindex. So few people has studied Chinese GEM industry fluctuation characteristics. However, asChinese GEM has more and more attention, as well as the gradual improvement of itself, investorsand theorists must attach importance to the industry fluctuation characteristics and the volatilitytransfer during industries.The first part introduces the background, significance, objectives and methods of this research. Thesecond part introduces the theory of risk and stock market volatility, and stock market volatilitymetrics and methods. Then it summarizes the history of stock market volatility heteroscedasticity,volatility characteristics, the intersegment co-movement linkage and the effect of industry factorson stock market volatility. The third part introduces the development of Chinese GEM and existingproblems to determine the content of this paper and to be addressed issues. The fourth part will startthe empirical analysis section. It analyzes and compares the co-movement among Chinese GEM,the main board and small board market. The fifth part selects four industries which contains thelargest listed companies to create industry indexes. Then to test the volatility clustering of industryindexes by GARCH model. The sixth part analyzes the volatility transmission among fourindustries and the whole board, as well as the contribution of industry to the overall GEM volatility.The last part analyzes empirical results qualitatively. Then it makes reasonable proposal accordingto the empirical results.Conclusions:(1) There were strong co-movements among the three broads, but as time goes on, theco-movement has become weaker and weaker. Until now, the co-movement has disappeared.(2)The yields sequences of Chinese GEM four main industries (raw materials, industry, informationtechnology, pharmaceutical) show a "fat tail, asymmetric distribution" feature.(3) The yieldssequences of four main industries sector show strong volatility clustering and weak continuity.(4)For the contribution of the overall volatility of the GEM and the industry sector volatility, thelargest contribution to the GEM fluctuations is information technology industry. However, there arebig contributions for the GEM index volatility to the four industry indexes volatility.(5) As for the volatility transmission, the GEM index is not the Granger reason of the industry indexes, but thefour industry indexes are the Granger reasons of the GEM index.This paper’s innovation:(1) It analyzes and compares the co-movement of Chinese GEM, mainboard and small board.(2) It creates industry indexes and analyzes the volatility clustering.(3) Itstudies the Chinese GEM industry fluctuations characteristics and the contribution of industry boardto the overall Chinese GEM volatility.This paper’s deficiencies:(1) The opening time of Chinese GEM is so short that the related data islittle and the board is unstable. Therefore, it is inevitable that the conclusions do not take into somefactors.(2) Although we can ensure the reasonableness of industry indexes, but personal power islimited that we cannot promise its perfection.