Hot money and China’s stock market volatility: Further evidence using the GARCH–MIDAS model

Yu Wei, Qianwen Yu, Jing Liu and Yang Cao

Physica A: Statistical Mechanics and its Applications, 2018, vol. 492, issue C, 923-930

Abstract: This paper investigates the influence of hot money on the return and volatility of the Chinese stock market using a nonlinear Granger causality test and a new GARCH-class model based on mixed data sampling regression (GARCH–MIDAS). The empirical results suggest that no linear or nonlinear causality exists between the growth rate of hot money and the Chinese stock market return, implying that the Chinese stock market is not driven by hot money and vice versa. However, hot money has a significant positive impact on the long-term volatility of the Chinese stock market. Furthermore, the dependence between the long-term volatility caused by hot money and the total volatility of the Chinese stock market is time-variant, indicating that huge volatilities in the stock market are not always triggered by international speculation capital flow and that Chinese authorities should further focus on more systemic reforms in the trading rules and on effectively regulating the stock market.

Keywords: Hot money; Chinese stock market; Nonlinear granger causality test; GARCH–MIDAS; Long-term volatility; Real estate market (search for similar items in EconPapers)
JEL-codes: C32 C51 E44 F32 F65 G01 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:492:y:2018:i:c:p:923-930

DOI: 10.1016/j.physa.2017.11.022

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