A State-Price Volatility Index for China's Stock Market

Michael O'Neill, Kent Wang, Zhangxin Frank Liu

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3 Citations (Scopus)
2 Downloads (Pure)

Abstract

This study derives a volatility index for China's stock market with similar properties to the Chicago Board Options Exchange Volatility Index (the ‘VIX’). A long-term benchmark of historic volatility expectations is here presented for China from 1996 to 2011, called the ‘China- State-Price Volatility (SPV)’. Construction of this index involves the use of SPV methodology, using implied volatility calculated from options on the Hang Seng China Enterprise Index (HSCEI). Historic open–high–low–close volatility on the Shanghai Composite Index (SHCI) is also used to extend the benchmark prior to the availability of HSCEI options data. The China-SPV successfully forecasts realised volatility for the Shanghai Stock Exchange. It also serves as a ‘fear gauge’ in that it monitors daily movements of the SHCI in the same way that the VIX monitors the S&P 500 index (Whaley, 2009). The China-SPV evidences an increasing relation with the US market in terms of the dynamic correlation of levels and changes with the VIX since 2004.

Original languageEnglish
Pages (from-to)607-626
Number of pages20
JournalAccounting and Finance
Volume56
Issue number3
DOIs
Publication statusPublished - 1 Sep 2016

Fingerprint

Volatility index
China's stock market
Price volatility
China
Composite index
Benchmark
Shanghai
Implied volatility
Methodology
Index options
Realized volatility
Shanghai stock exchange
Dynamic correlation
Volatility forecasts
Exchange option

Cite this

O'Neill, Michael ; Wang, Kent ; Liu, Zhangxin Frank. / A State-Price Volatility Index for China's Stock Market. In: Accounting and Finance. 2016 ; Vol. 56, No. 3. pp. 607-626.
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A State-Price Volatility Index for China's Stock Market. / O'Neill, Michael; Wang, Kent; Liu, Zhangxin Frank.

In: Accounting and Finance, Vol. 56, No. 3, 01.09.2016, p. 607-626.

Research output: Contribution to journalArticleResearchpeer-review

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