An Empirical Analysis To Factors Affecting The Stock Price Volatility Of China's New OTC Market

The New OTC Market had a greater volatility when the market-maker system was launched in 2015.But while the index gradually declined in the following three years,the volatility gradually decreased.The volatility during the day was low,which shows the characteristics of PE.But some stocks fluctuated largely.The enthusiasm of investors in the secondary market has gradually withdrawn.The liquidity is so insufficient that the valuation and financing efficiency of enterprises are affected.The purpose of this paper is to help investors avoid volatility risks,make use of volatility to invest stocks,and enhance the trading liveness of the New OTC Market to improve the liquidity.The paper measures the market volatility through the GARCH model.And then compare the volatility of the New OTC Market with China's Shanghai,Shenzhen Stock Markets and the OTCQX market in the US,in order to explore whether the volatility of China's New OTC Market Index is at a reasonable level.Establish a framework for the volatility factors of the New OTC Market.For the study of market factors,this paper mainly uncovers the volatility spillover effects between New OTC Market and China's Shanghai and Shenzhen Stock Markets,and also compares the volatility spillover effects of New OTC Market with that of OTCQX and OTCBB markets in the US.Enterprise-level analysis includes total assets and financial leverage,as well as trading factors and dividend policies to explore the enterprise-level impact of the New OTC Market's volatility.The main findings of this paper are as follows:Firstly,the volatility of the New OTC Market is lower than that of the Shanghai and Shenzhen stock markets.And now it is also significantly lower than that of the OTCQX.The volatility of the OTC market is not surely lower than that of the field market.For example,the volatility of the OTCQX and the American main board market is almost the same.Thus,the New OTC Market' volatility is generally lower.The volatility of the Market Maker Index in the New OTC Market is too low,and the negotiating transfer and call auction system have characteristics of significant leptokurtosis and fatter tails than normal distribution,and the innovation layer' volatility is higher than the base layer's.Secondly,China's New OTC Market and Shanghai and Shenzhen stock markets have a low two-way volatility spillover relationship.This is not a special phenomenon in China's stock market.The OTCQX and the American stock market also have volatility spillover effects.The volatility spillover effect of the Shanghai and Shenzhen stock markets to the New OTC Market is higher than that of the reverse effect.The volatility spillover effect of the Small and Medium-sized Enterprises and Growth Enterprise Market(GEM)of Shenzhen on the New Third Board is stronger than that of the main board market.The volatility spillover effect of the market-making system is stronger than the negotiating transfer and call auction's.The volatility spillover effect will change with time.The correlation between the main board market and the New OTC Market is growing,but the volatility spillover effect fluctuates largely.Thirdly,as for fundamental factor,effects of total assets,asset-liability ratio,operating profit growth rate on weekly price volatility are significantly negative,and ROA is significantly positive.The company's total asset,ROA,and asset-liability ratio have a greater impact on volatility,and the asset-liability ratio has significant industry characteristics.In terms of trading factors,corporate governance,market makers,and liquidity influence volatility significantly.Director,supervisor and managerial ownership's shareholding and ownership concentration can increase volatility.And institutional investors,market makers,and venture capital can reduce volatility.The higher the turnover rate,the lower the long-term volatility.Dividends can reduce stock volatility,the dividend yield is negatively correlated,and the dividend payout ratio is positively correlated.The impact of management expense rate and other receivables in the New OTC Market is significantly lower than that of the Shanghai and Shenzhen stock markets.Moreover,the impact of asset-liability ratio,institutional shareholding ratio and dividend payout ratio on New OTC Market' volatility is contrary to the main board market.In summary,investors are advised to choose the innovation layer.Investors should pay special attention to the volatility spillover effect of the GEM on the innovation layer.As for the base layer,pay attention to the impact of the enterprise level,and choose high-quality enterprises with PE/VC participation.In the process of rising market,we can use high volatility strategy to invest.Not only should investors invest in enterprises featured with small total assets and high ROA,but also reduce risk volatility.Choose more market makers,equity decentralization,and higher liquidity ratio.For the advice of policy makers,the first is to improve the fluctuations of the innovation layer and to stabilize the volatility of the base layer.The second is to moderately increase market volatility to activate the market.It is required that the market makers are required to raise the standards for selecting market-making enterprises,establish a flexible market maker supervision mechanism,give preferential treatment to market makers,and improve the construction of relevant supporting systems.