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Macro fundamentals as a source of stock market volatility in China: A GARCH-MIDAS approach

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  • Girardin, Eric
  • Joyeux, Roselyne

Abstract

In order to shed new light on the influence of volume and economic fundamentals on the long-run volatility of the Chinese stock market we follow the methodology introduced by Engle et al. (2009) and Engle and Rangel (2008) to account for the effects of macro fundamentals, and augment it with speculative factors. We show that the Chinese A-share market presented speculative characteristics before WTO entry in late 2001. However, after that date macroeconomic fundamentals and their volatility played an increasing role in the A-share market, especially CPI inflation, at the expense of speculative factors, proxied by volume. The B-share market has shown speculative characteristics since it was opened to domestic investors in 2001. However the disconnect of long-run stock market volatility from real economic activity in China is particularly noteworthy.

Suggested Citation

  • Girardin, Eric & Joyeux, Roselyne, 2013. "Macro fundamentals as a source of stock market volatility in China: A GARCH-MIDAS approach," Economic Modelling, Elsevier, vol. 34(C), pages 59-68.
  • Handle: RePEc:eee:ecmode:v:34:y:2013:i:c:p:59-68
    DOI: 10.1016/j.econmod.2012.12.001
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    Cited by:

    1. Cristina Amado & Annastiina Silvennoinen & Timo Ter¨asvirta, 2018. "Models with Multiplicative Decomposition of Conditional Variances and Correlations," NIPE Working Papers 07/2018, NIPE - Universidade do Minho.
    2. Westerlund, Joakim & Narayan, Paresh Kumar & Zheng, Xinwei, 2015. "Testing for stock return predictability in a large Chinese panel," Emerging Markets Review, Elsevier, vol. 24(C), pages 81-100.
    3. repec:eee:joecas:v:14:y:2016:i:pa:p:78-92 is not listed on IDEAS
    4. repec:eee:ecmode:v:72:y:2018:i:c:p:249-259 is not listed on IDEAS
    5. repec:bla:pacecr:v:22:y:2017:i:3:p:276-292 is not listed on IDEAS
    6. Chen, Jian & Jiang, Fuwei & Li, Hongyi & Xu, Weidong, 2016. "Chinese stock market volatility and the role of U.S. economic variables," Pacific-Basin Finance Journal, Elsevier, vol. 39(C), pages 70-83.
    7. Zeynalov, Ayaz, 2017. "Forecasting Tourist Arrivals in Prague: Google Econometrics," MPRA Paper 83268, University Library of Munich, Germany.
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    9. repec:eco:journ1:2017-04-39 is not listed on IDEAS
    10. repec:spr:orspec:v:39:y:2017:i:4:d:10.1007_s00291-017-0484-0 is not listed on IDEAS
    11. repec:eee:chieco:v:48:y:2018:i:c:p:205-222 is not listed on IDEAS
    12. Yongheng Deng & Eric Girardin & Roselyne Joyeux & Shuping Shi, 2017. "Did bubbles migrate from the stock to the housing market in China between 2005 and 2010?," Pacific Economic Review, Wiley Blackwell, vol. 22(3), pages 276-292, August.
    13. Long, Ling & Tsui, Albert K. & Zhang, Zhaoyong, 2014. "Conditional heteroscedasticity with leverage effect in stock returns: Evidence from the Chinese stock market," Economic Modelling, Elsevier, vol. 37(C), pages 89-102.
    14. Emiliano Magrini & Ayca Donmez, 2013. "Agricultural Commodity Price Volatility and Its Macroeconomic Determinants: A GARCH-MIDAS Approach," JRC Working Papers JRC84138, Joint Research Centre (Seville site).
    15. repec:wsi:rpbfmp:v:20:y:2017:i:02:n:s021909151750014x is not listed on IDEAS
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    More about this item

    Keywords

    MIDAS; Conditional variance; China;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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