Volatility and Asymmetric Effect of Random Shocks: A Comparison of Chinese and U.S. Stock Markets

This paper surveys the fields of relation between the stock returns and random shocks happened to the stock markets. We study the volatility of the returns in both Chinese stock market and U.S. stock market. We use GJR-GARCH model to measure the conditional variance of the stock return compared with the linear GARCH model, where we restrict the negative unconditional variance parameter bigger than the positive one with a dummy variable. We find the support from U.S. stock market that there exists asymmetric effect of random shocks on the stock return that the negative information gives much stronger effect than the positive one. But we didn´t find evidence to support this hypothesis from Chinese stock market