A Market Crash or Tail Risk? Heavy Tails and Asymmetry of Returns in the Chinese Stock Market

Zeyu Xing and Rustam Ibragimov

A chapter in Essays in Honor of Joon Y. Park: Econometric Methodology in Empirical Applications, 2023, vol. 45B, pp 181-205 from Emerald Group Publishing Limited

Abstract: Rapid stock market growth without real economic back-up has led to the 2015 Chinese Stock Market Crash with thousands of stocks hitting the down limit simultaneously multiple times. The authors provide a detailed analysis of structural breaks in heavy-tailedness and asymmetry properties of returns in Chinese A-share markets due to the crash using recently proposed robust approaches to tail index inference. The empirical analysis points out to heavy-tailedness properties often implying possibly infinite second moments and also focuses on gain/loss asymmetry in the tails of daily returns on individual stocks. The authors further present an analysis of the main determinants of heavy-tailedness in Chinese financial markets. It points out to liquidity and company size as being the most important factors affecting the returns’ heavy-tailedness properties. At the same time, the authors do not observe statistically significant differences in tail indices of the returns on A-shares and the coefficients on factors affecting them in the pre-crisis and post-crisis periods.

Keywords: Market crashes; crises; tail risk; heavy tails; gain/loss asymmetry; structural breaks; Chinese stock market (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-90532023000045b009

DOI: 10.1108/S0731-90532023000045B009

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