Chinese stock market volatility and the role of U.S. economic variables

Jian Chen, Fuwei Jiang (), Hongyi Li () and Weidong Xu

Pacific-Basin Finance Journal, 2016, vol. 39, issue C, 70-83

Abstract: This paper investigates the effects of U.S. economic variables on the time variation of Chinese stock market volatility. We find that U.S. economic variables such as the dividend price ratio, dividend yield and industrial production strongly forecast the future monthly volatilities of the Chinese stock market. The predictability is statistically and economically significant and can be further improved when combining the information in all U.S. economic variables together. Forecast encompassing tests and regression tests show that the forecasting power of U.S. economic variables is incremental when comparing with the Chinese domestic economic variables. Our findings are robust for the out-of-sample analysis and a number of Chinese industry portfolios volatilities.

Keywords: Volatility forecasting; U.S. economic variables; Out-of-sample forecasting; Combination forecast; Chinese stock market (search for similar items in EconPapers)
JEL-codes: C22 C53 G11 G12 G17 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:39:y:2016:i:c:p:70-83

DOI: 10.1016/j.pacfin.2016.05.013

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