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Article

Volatility and Correlation Dynamics of the Mainland
Chinese and Hong Kong Stock Markets:
Evidence from the A-, B-, H- and Red Chip Markets

Kin-Yip Ho, Yanlin Shi and Zhaoyong Zhang
The Journal of Wealth Management Fall 2014, 17 (2) 55-67; DOI: https://doi.org/10.3905/jwm.2014.17.2.055
Kin-Yip Ho
is a lecturer in finance and statistics at the Australian National University’s Research School of Finance, Actuarial Studies and Applied Statistics in Canberra, Australia.
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  • For correspondence: kin-yip.ho@anu.edu.au
Yanlin Shi
is an associate lecturer in statistics at the Australian National University’s Research School of Finance, Actuarial Studies and Applied Statistics in Canberra, Australia.
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  • For correspondence: yanlin.shi@anu.edu.au
Zhaoyong Zhang
is an associate professor of finance at the Edith Cowan University School of Business at Edith Cowan University in Joondalup, Australia.
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  • For correspondence: zhaoyong.zhang@ecu.edu.au
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Abstract

This article examines the volatility dynamics of the mainland Chinese stock markets (Shanghai A- and B-shares, Shenzhen A- and B-shares, H-shares, and red chips) by employing the daily returns data from 1993 to 2012 and a multivariate volatility framework that incorporates the features of asymmetries, persistence, and time-varying correlations, which are typically observed in stock markets of developed economies. Our results indicate that, unlike the Shenzhen and Shanghai A-share markets, the B-share, H-share and red chip markets do not exhibit significant asymmetric volatility (leverage effect). Furthermore, return volatility in the A-share markets is relatively more volatile than the others before 1997 and becomes more stable afterward. In addition, there is strong evidence of volatility persistence in all the markets, and this finding is robust to changes in model specification. The Chinese stock markets apparently share a common degree of persistence (fractional integration) in volatility. Moreover, the conditional correlations are significantly time-varying and are strengthening over time, especially after 2002. These findings have important implications for hedging and portfolio management and diversification.

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The Journal of Wealth Management: 17 (2)
The Journal of Wealth Management
Vol. 17, Issue 2
Fall 2014
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Volatility and Correlation Dynamics of the Mainland
Chinese and Hong Kong Stock Markets:
Evidence from the A-, B-, H- and Red Chip Markets
Kin-Yip Ho, Yanlin Shi, Zhaoyong Zhang
The Journal of Wealth Management Jul 2014, 17 (2) 55-67; DOI: 10.3905/jwm.2014.17.2.055

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Volatility and Correlation Dynamics of the Mainland
Chinese and Hong Kong Stock Markets:
Evidence from the A-, B-, H- and Red Chip Markets
Kin-Yip Ho, Yanlin Shi, Zhaoyong Zhang
The Journal of Wealth Management Jul 2014, 17 (2) 55-67; DOI: 10.3905/jwm.2014.17.2.055
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