Empirical Study on the Factors Influencing Stock Market Volatility in China

TL;DR

This study investigates the factors influencing China's stock market volatility using ARDL and principal component analysis on daily data from 2010 to 2024, focusing on exchange rates and bond yields.

Contribution

It applies ARDL and PCA methods to analyze the impact of exchange rates and bond yields on Chinese stock market volatility with recent data.

Findings

Exchange rate significantly affects stock volatility.

Bond yields in China and US influence market fluctuations.

Model provides insights for market stability strategies.

Abstract

This paper mainly utilizes the ARDL model and principal component analysis to investigate the relationship between the volatility of China's Shanghai Composite Index returns and the variables of exchange rate and domestic and foreign bond yields in an internationally integrated stock market. This paper uses a daily data set for the period from July 1, 2010 to April 30, 2024, in which the dependent variable is the Shanghai Composite Index return, and the main independent variables are the spot exchange rate of the RMB against the US dollar, the 10-year treasury bond yields in China and the United States and their lagged variables, with the effect of the time factor added. Firstly, the development of the stock, foreign exchange and bond markets and the basic theories are reviewed, and then each variable is analyzed by descriptive statistics, the correlation between the independent variables and the dependent variable is expanded theoretically, and the corresponding empirical analyses are briefly introduced, and then the empirical analyses and modeling of the relationship between the independent variables and the dependent variable are carried out on the basis of the theoretical foundations mentioned above with the support of the daily data, and the model conclusions are analyzed economically through a large number of tests, then the model conclusions are analyzed economically. economic analysis of the model conclusions, and finally, the author proposes three suggestions to enhance the stability and return of the Chinese stock market, respectively. Key Words: Chinese Stock Market, Volatility, GARCH, ARDL Model