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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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    More about this item

    Keywords

    MIDAS; Conditional variance; China;
    All these keywords.

    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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