Long Memory,Structural Change And State Identification Of Volatility In Chinese Stock Market

This article makes a multi-level analysis from the 3 parts: the Main-Board Market,the SME Board Marke and the GEM market.Selecting the Shanghai Composite Index,Shenzhen Component Index and the Shanghai and Shenzhen 300 Index as the representative of Main-Board Market index;selecting the Small Board index(399005)and the Growth Enterprise Index(399006)as the representative of SME Board Marke and the GEM market.The log realized volatility based on the high frequency of 5 min stock price of stock index is studied in this paper.A variety of methods are used to review the existence of long memory and structural breaks for volatility of stock indexes,and to analyze the effect of structural change on long-term memory with Markov Switching model(MS)and Bai and Perron(1998,2003)'s multiple-mean structural model(BP),so as to test the volatility of stock market in China has real longterm memory or spurious long memory.In addition,in order to prove the property of real or spurious long memory furtherly,we estimate not only the original volatility sequence of stock indexes but also break-free series of volatility.The results indicate that the volatilities of Chinese stock market exhibit structural change and real long memory;All stock index log realized volatilities are divided into two states,including high-volatility and stable-volatility regime.Although the identified structural breaks are different,the capture the capture of important structural breaks is same by using of BPand MS model.And we have capture that Chinese stock market is in high-volatility regime during the end of 2006 to 2010 and the end of 2014 to the beginning of 2016 successfully.the study results conform to reality.The point of transition from low-volatility to high-volatility regime identified by BP and MS models plays an early warning role in the stock market.Accordingly,relevant departments and investors should adjust their investment strategies so that serious risks could be prevented.Among the two Board Markets,it is the time of identified structural breaks in the SME Board Market that logging behind the Main-Board Market,but it still gives an early warning signal for bubbles in the stock market.