Advanced Search
MyIDEAS: Login to save this article or follow this journal

Regulation Change and Volatility Spillovers: Evidence from China's Stock Markets

Contents:

Author Info

  • Zhian Chen
  • Hai Jiang
  • Donghui Li
  • Ah Boon Sim
Registered author(s):

    Abstract

    This paper investigates the structural changes of volatility spillovers between Chinese A-share and B-share markets induced by a regulation change on February 19, 2001, that allowed Chinese domestic investors to trade in the B-share market. The empirical results of the study, using high-frequency intraday data collected from a sample of seventy-eight firms issuing both A-shares and B-shares and employing a bivariate generalized autoregressive conditional heteroskedasticity (GARCH) model, show that after the regulation change, the volatility in A-shares increases the volatility in B-shares, thus increasing the risk of the whole market, whereas the latter reduces the former, thus reducing the risk of the whole market. A further investigation of the determinants influencing these structural changes shows that the following factors can encourage structural changes that reduce overall market risk: government ownership, institutional ownership, firm size, B-share proportion, and market-to-book ratio. Conversely, the following factors can encourage structural changes that increase overall market risk: dual roles of chief executive officer and chairman and the joint effect of firm size and B-share proportion.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://mesharpe.metapress.com/link.asp?target=contribution&id=4J72X77H2287712Q
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

    Volume (Year): 46 (2010)
    Issue (Month): 6 (November)
    Pages: 140-157

    as in new window
    Handle: RePEc:mes:emfitr:v:46:y:2010:i:6:p:140-157

    Contact details of provider:
    Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

    Related research

    Keywords: bivariate GARCH; Chinese stock market; information transmission; volatility spillover;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Kalok Chan & Albert J. Menkveld & Zhishu Yang, 2008. "Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount," Journal of Finance, American Finance Association, vol. 63(1), pages 159-196, 02.
    2. Christian Leuz & Karl V. Lins & Francis E. Warnock, 2010. "Do Foreigners Invest Less in Poorly Governed Firms?," Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 3245-3285, March.
    3. Haigang Zhou & John Geppert & Dongmin Kong, 2010. "An Anatomy of Trading Strategies: Evidence from China," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 46(2), pages 66-79, March.
    4. Hongbo Pan & Xinping Xia & Minggui Yu, 2008. "Expropriation: Evidence from Rights Issues in China," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(1), pages 5-20, January.
    5. Donghui Li & Fariborz Moshirian & Peter Kien Pham & Jason Zein, 2006. "When Financial Institutions Are Large Shareholders: The Role of Macro Corporate Governance Environments," Journal of Finance, American Finance Association, vol. 61(6), pages 2975-3007, December.
    6. Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    7. Sun, Qian & Tong, Wilson H. S., 2000. "The effect of market segmentation on stock prices: The China syndrome," Journal of Banking & Finance, Elsevier, vol. 24(12), pages 1875-1902, December.
    8. Rossi, Stefano & Volpin, Paolo F., 2004. "Cross-country determinants of mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 74(2), pages 277-304, November.
    9. Stulz, René M, 1995. "Foreign Equity Investment Restrictions, Capital Flight, and Shareholder Wealth Maximization," CEPR Discussion Papers 1208, C.E.P.R. Discussion Papers.
    10. Stulz, Rene M & Wasserfallen, Walter, 1995. "Foreign Equity Investment Restrictions, Capital Flight, and Shareholder Wealth Maximization: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 1019-57.
    11. Kayhan, Ayla & Titman, Sheridan, 2007. "Firms' histories and their capital structures," Journal of Financial Economics, Elsevier, vol. 83(1), pages 1-32, January.
    12. Brockman, Paul & Yan, Xuemin (Sterling), 2009. "Block ownership and firm-specific information," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 308-316, February.
    13. Liu, Laura Xiaolei, 2009. "Historical market-to-book in a partial adjustment model of leverage," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 602-612, December.
    14. Kalok Chan & Allaudeen Hameed & Sie Ting Lau, 2003. "What if Trading Location Is Different from Business Location? Evidence from the Jardine Group," Journal of Finance, American Finance Association, vol. 58(3), pages 1221-1246, 06.
    15. Wei, Zuobao & Xie, Feixue & Zhang, Shaorong, 2005. "Ownership Structure and Firm Value in China's Privatized Firms: 1991–2001," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(01), pages 87-108, March.
    16. Mitton, Todd, 2006. "Stock market liberalization and operating performance at the firm level," Journal of Financial Economics, Elsevier, vol. 81(3), pages 625-647, September.
    17. Lee, Cheng F & Chen, Gong-meng & Rui, Oliver M, 2001. "Stock Returns and Volatility on China's Stock Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 523-43, Winter.
    18. Umutlu, Mehmet & Akdeniz, Levent & Altay-Salih, Aslihan, 2010. "The degree of financial liberalization and aggregated stock-return volatility in emerging markets," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 509-521, March.
    19. Domowitz, Ian & Glen, Jack & Madhavan, Ananth, 1997. " Market Segmentation and Stock Prices: Evidence from an Emerging Market," Journal of Finance, American Finance Association, vol. 52(3), pages 1059-85, July.
    20. Robert Brooks & Vanitha Ragunathan, 2003. "Returns and volatility on the Chinese stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 13(10), pages 747-752.
    21. Wang, Jianxin, 2007. "Foreign equity trading and emerging market volatility: Evidence from Indonesia and Thailand," Journal of Development Economics, Elsevier, vol. 84(2), pages 798-811, November.
    22. von Eije, Henk & Megginson, William L., 2008. "Dividends and share repurchases in the European Union," Journal of Financial Economics, Elsevier, vol. 89(2), pages 347-374, August.
    23. Amélie Charles & Olivier Darne, 2009. "The random walk hypothesis for Chinese stock markets: Evidence from variance ratio tests," Post-Print hal-00771080, HAL.
    24. Xiaoqing Eleanor Xu, 2005. "Performance of Securities Investment Funds in China," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 41(5), pages 28-42, October.
    25. Bae, Kee-Hong & Chan, Kalok & Ng, Angela, 2004. "Investibility and return volatility," Journal of Financial Economics, Elsevier, vol. 71(2), pages 239-263, February.
    26. Bai, Chong-En & Liu, Qiao & Lu, Joe & Song, Frank M. & Zhang, Junxi, 2004. "Corporate governance and market valuation in China," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 599-616, December.
    27. Tuomo Vuolteenaho, 2002. "What Drives Firm-Level Stock Returns?," Journal of Finance, American Finance Association, vol. 57(1), pages 233-264, 02.
    28. Chan, Kalok & Menkveld, Albert J. & Yang, Zhishu, 2007. "The informativeness of domestic and foreign investors' stock trades: Evidence from the perfectly segmented Chinese market," Journal of Financial Markets, Elsevier, vol. 10(4), pages 391-415, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Bley, Jorg & Saad, Mohsen, 2011. "The effect of financial liberalization on stock-return volatility in GCC markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 662-685.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:mes:emfitr:v:46:y:2010:i:6:p:140-157. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Nguyen).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.