An Empirical Analysis on Stock Market Volatility Based on the Institutional Change

Liu Fenggen Zhou YuJian

Abstract:Based on the two－times significant institutional changes in stock market:the introduction of regulatory system and non－tradable share reform, this paper divides the Shanghai Composite Index into three subsample periods as S1, S2, S3, and uses GARCH, EGARCH and DCC－GARCH models to comparative analyze stock market volatility of three subsample periods to examine the impact of institutional changes on stock market volatility. The results show that:① As China stock market evolves, institutional changes increase the average revenue on stock market and reduce its risk; ② Clustering Effect, Sustainability Effect and Asymmetric Effect which do not exist in S1 period are observed at S2 and S3 periods, with the strongest effects observed from S3 period; ③By correlation analyzing with US and HK stock markets, China stock market is not significantly relevant to other markets at S1 period, but this relevance emerges and grows at S2 and S3 periods, with the relevance with US market stronger than the one with HK market at S3 period.

Key words:institutional change; stock market; volatility; relevance