Black swan events in China's stock markets: Intraday price behaviors on days of volatility

Wen-Yuan Lin and I-Chun Tsai

International Review of Economics & Finance, 2019, vol. 59, issue C, 395-411

Abstract: China's stock market crash on August 24, 2015 affected global stock markets, indicating a possible black swan event. This study looked at trading days when sudden rises and drops occurred in 2015 in its stock markets to examine the intraday fluctuation behaviors of stock prices in order to answer several questions: (a) How did the market resume stability after volatility in stock prices occurred? (b) Did the corrections after days of sudden rises differ from those after days when sudden drops occurred? (c) Which of the investigated trading days could be classified as black swan events? Five trading days with the highest and lowest daily returns in 2015 in the Shanghai and Shenzhen stock markets were selected as the days of volatility. The quantile autoregression unit-root test was used to test whether stock price indices converged or dispersed on days of high volatility as time passed. The results reveal that a black swan event was identifiable only for the sudden drop on May 28. On other trading days, China's stock markets exhibited notable corrections of mean reversion, and the speed of market recovery increased with the extent of price volatility. In addition, wave patterns of slow rises and rapid falls in intraday stock price fluctuations and corrections were observable after occurrences of stock price volatility, showing that overreactions and underreactions happened consecutively.

Keywords: Black swan event; China stock market; Intraday data; Price convergence; Unit root quantile test (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:59:y:2019:i:c:p:395-411

DOI: 10.1016/j.iref.2018.10.005

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