STOCK RETURNS AND VOLATILITY ON CHINA'S STOCK MARKETS

Cheng F. Lee · Gongmeng Chen · Oliver Meng Rui

166 citations0/0 files storedThe Journal of Financial Research

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Financial Risk and Volatility Modeling Financial Markets and Investment Strategies Market Dynamics and Volatility

Abstract

Abstract We examine time‐series features of stock returns and volatility, as well as the relation between return and volatility in four of China's stock exchanges. Variance ratio tests reject the hypothesis that stock returns follow a random walk. We find evidence of long memory of returns. Application of GARCH and EGARCH models provides strong evidence of time‐varying volatility and shows volatility is highly persistent and predictable. The results of GARCH‐M do not show any relation between expected returns and expected risk. Daily trading volume used as a proxy for information arrival time has no significant explanatory power for the conditional volatility of daily returns. JEL classification: G15

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References

1986Generalized autoregressive conditional heteroskedasticity 1991Conditional Heteroskedasticity in Asset Returns: A New Approach 1988Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test 1993Measuring and Testing the Impact of News on Volatility 1983THE ESTIMATION AND APPLICATION OF LONG MEMORY TIME SERIES MODELS 1986Modelling the persistence of conditional variances 1988Mean reversion in stock prices 1987Mean Reversion in Stock Prices: Evidence and Implications

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