Normal and abnormal information transmissions: evidence from China's stock markets

Abstract

This article investigates normal and abnormal information transmissions by examining diffusion volatility and jump intensity spillovers in China's stock markets. We analyse the impact of releasing investing restriction to information transmission mechanism, and also the interactions between ‘A’ and ‘B’ share markets of Shanghai and Shenzhen exchanges during the pre- and post-event periods. A CBP-GARCH model is employed in our empirical analysis. The empirical results exhibit the evidence of bidirectional normal information transmissions between ‘A’ and ‘B’ share markets of both exchanges. However, abnormal information transmissions are unidirectional, flowing from ‘B’ share market to ‘A’ share market only. Our results are consistent with the information transfer hypothesis (Chiu and Kwok, 1998). Moreover, information transmissions mechanism is affected by the removal of investing restriction, thus the two markets are more integrated gradually.

Notes

¹ The researches of information transfer and volatility spillovers between ‘A’ and ‘B’ shares markets can also refer to (Hu et al . 1997), (Su and Fleisher 1998), 1999), (Poon and Fung 2000), (Sjoo and Zhang 2000), and (Brooks and Ragunathan 2003).

² (See Maheu and McCurdy 2004).

³ The estimation result of CBP-GARCH(1,1) with the restriction of α _ab = α _ba = α _ab1 = α _ba1 = η _ab = η _ba = η _ab1 = η _ba1 = ρ _ab1 = ρ _Jab1 = 0 is not reported here.