The idiosyncratic risk in Chinese stock market

Julia Darby, Hai Zhang, Jinkai Zhang

Research output: Contribution to conference › Paper

Abstract

Using daily stock return data of all listed firms in Chinese stock market from 1998 to 2018, we disaggregate the volatility of common stocks at the market, industry and firm levels. We find market volatility, on average, is the highest while firm volatility tends to lead to market and industry volatility series. None long-term trend time series behaviour exists for all three volatility series and firm volatility is best described by an autoregressive process with regime shifts associated with the structural market reforms or volatile market movements. We further proceed to identify the source of volatility at the industry level and find the idiosyncratic volatility in the largest manufacturing industry not only accounts for the largest proportion in the aggregate firm volatility but also is the lead indicator for the idiosyncratic volatility of other industries. Finally, unlike Brandt et. al. [Review of Financial Studies 23(2): 863-899 (2010)], we find the idiosyncratic volatility in Chinese stock market is associated with high stock trading activities by institutional investors, the result of which is also robust when using other measures of idiosyncratic volatility.
LanguageEnglish
Number of pages36
Publication statusPublished - 9 Sep 2019
Event22nd Dynamic Econometrics Conference in Nuffield College Oxford, UK. -
Duration: 9 Sep 2019 → 10 Sep 2019
https://www.nuffield.ox.ac.uk/news-events/events-and-seminars/dynamic-econometrics-conference-2019

Conference

Conference22nd Dynamic Econometrics Conference in Nuffield College Oxford, UK.
Period9/09/19 → 10/09/19
Internet address

Fingerprint

Chinese stock market
Idiosyncratic risk
Idiosyncratic volatility
Industry
Regime shift
Trading activity
Institutional investors
Stock returns
Autoregressive process
Market reform
Market volatility
Manufacturing industries
Proportion

Keywords

  • volatility decomposition
  • regime switching
  • volatility dynamics
  • idiosyncratic volatility
  • institutional trading behaviour

Cite this

Darby, J., Zhang, H., & Zhang, J. (2019). The idiosyncratic risk in Chinese stock market. Paper presented at 22nd Dynamic Econometrics Conference in Nuffield College Oxford, UK., .
Darby, Julia ; Zhang, Hai ; Zhang, Jinkai. / The idiosyncratic risk in Chinese stock market. Paper presented at 22nd Dynamic Econometrics Conference in Nuffield College Oxford, UK., .36 p.
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Darby, J, Zhang, H & Zhang, J 2019, 'The idiosyncratic risk in Chinese stock market' Paper presented at 22nd Dynamic Econometrics Conference in Nuffield College Oxford, UK., 9/09/19 - 10/09/19, .

The idiosyncratic risk in Chinese stock market. / Darby, Julia; Zhang, Hai; Zhang, Jinkai.

2019. Paper presented at 22nd Dynamic Econometrics Conference in Nuffield College Oxford, UK., .

Research output: Contribution to conference › Paper

TY - CONF

T1 - The idiosyncratic risk in Chinese stock market

AU - Darby, Julia

AU - Zhang, Hai

AU - Zhang, Jinkai

PY - 2019/9/9

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N2 - Using daily stock return data of all listed firms in Chinese stock market from 1998 to 2018, we disaggregate the volatility of common stocks at the market, industry and firm levels. We find market volatility, on average, is the highest while firm volatility tends to lead to market and industry volatility series. None long-term trend time series behaviour exists for all three volatility series and firm volatility is best described by an autoregressive process with regime shifts associated with the structural market reforms or volatile market movements. We further proceed to identify the source of volatility at the industry level and find the idiosyncratic volatility in the largest manufacturing industry not only accounts for the largest proportion in the aggregate firm volatility but also is the lead indicator for the idiosyncratic volatility of other industries. Finally, unlike Brandt et. al. [Review of Financial Studies 23(2): 863-899 (2010)], we find the idiosyncratic volatility in Chinese stock market is associated with high stock trading activities by institutional investors, the result of which is also robust when using other measures of idiosyncratic volatility.

AB - Using daily stock return data of all listed firms in Chinese stock market from 1998 to 2018, we disaggregate the volatility of common stocks at the market, industry and firm levels. We find market volatility, on average, is the highest while firm volatility tends to lead to market and industry volatility series. None long-term trend time series behaviour exists for all three volatility series and firm volatility is best described by an autoregressive process with regime shifts associated with the structural market reforms or volatile market movements. We further proceed to identify the source of volatility at the industry level and find the idiosyncratic volatility in the largest manufacturing industry not only accounts for the largest proportion in the aggregate firm volatility but also is the lead indicator for the idiosyncratic volatility of other industries. Finally, unlike Brandt et. al. [Review of Financial Studies 23(2): 863-899 (2010)], we find the idiosyncratic volatility in Chinese stock market is associated with high stock trading activities by institutional investors, the result of which is also robust when using other measures of idiosyncratic volatility.

KW - volatility decomposition

KW - regime switching

KW - volatility dynamics

KW - idiosyncratic volatility

KW - institutional trading behaviour

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Darby J, Zhang H, Zhang J. The idiosyncratic risk in Chinese stock market. 2019. Paper presented at 22nd Dynamic Econometrics Conference in Nuffield College Oxford, UK., .

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