An empirical analysis of Chinese stock price anomalies and volatility

Abstract

Day-of-the week anomalies and monthly effect have proven to be persistent in many of the developed stock markets (Robert, 1987; Gultekin, 1983; Cross, 1973;) as well as the emerging stock markets (Mohammad, 1987; Balaban, 1995; Ho, 1999). Chinese stock market is new to the global financial markets, but it experienced rapid growth over the last two decades. The 1997 Asian financial crisis was a major regional crisis that significantly increased volatility in several markets. This study empirically analyzes the stock return anomalies and volatility of the Shanghai and Shenzhen stock markets and examines whether the 1997 Asian financial crisis has influenced on stock price anomalies and volatility in the Chinese stock markets.

The AR(1), GARCH (1,1) models are employed to test the day-of-the-week effect in Chinese stock markets. The results show the 1997 Asian financial crisis changed stock price pattern and volatility in A-Share and B-share markets. This study can benefit the investors who may exploit the predictable pattern in asset returns and make abnormal returns. The study also provides useful information to policy makers so they can adjust the existing policies or implement new policies.