Ann Oper Res (2018) 266:499–510
ANALYTICAL MODELS FOR FINANCIAL MODELING AND RISK MANAGEMENT
On Chinese stock markets: How have they evolved over
Published online: 5 September 2017
© Springer Science+Business Media, LLC 2017
Abstract China is the largest emerging capital market with a unique setup: it issues simul-
taneously both (i) Class A shares addressed to Chinese domestic investors, and (ii) Class B
Shares addressed to foreign investors. After Chinese stock market resumed the operation,
they feature dramatic ﬂuctuations due to policy changes and over-speculative activity of
individual investors. This paper aims to analyse the evolution of both the Shanghai A and B
Markets through a Markov-switching asymmetric GARCH in four different time frames.
Keywords China stock market · Markov-switching asymmetric GARCH · Volatility
In China 1949, a successful Mao Zedong seized power and, for the sake of transforming the
country into a Communist Economy, decided to close the national Financial Markets.
In 1978, Deng Xiaoping, the Mao’s successor, initiated an Economic Reformation to
modernise and open the nation gradually. In doing so, Chinese stock markets were resuming,
growing rapidly and becoming the largest emerging capital market in the world.
Chinese stock markets have a unique setup that has never been featured before. It issues
two classes of shares, sometimes called “twin” shares since they have the same rights: (i)
Class A shares are addressed to Chinese domestic investors and are traded in national cur-
Electronic supplementary material The online version of this article (doi:10.1007/s10479-017-2602-4)
contains supplementary material, which is available to authorized users.
Dep. d’Economia and CREIP, Universitat Rovira i Virgili, Av. Universitat 1, 43204 Reus, Spain
Dep. Economia Aplicada, Universitat Autònoma Barcelona, 08193 Cerdanyola del Vallès,