The Shanghai- Hong Kong Stock Connect: An Application of the Semi-CGARCH and Semi-EGARCH
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Keywords

Semiparametric extension, GARCH, CGARCH, EGARCH, Risk measures, Long-term risk, Short-term risk, Value at Risk, Shanghai- Hong Kong stock, Connect.

How to Cite

Peitz, C. ., Feng, Y. ., Gilroy, B. M., & Stoeckmann, N. . (2020). The Shanghai- Hong Kong Stock Connect: An Application of the Semi-CGARCH and Semi-EGARCH. Asian Economic and Financial Review, 10(4), 427–438. https://doi.org/10.18488/journal.aefr.2020.104.427.438

Abstract

This paper examines the impact on volatility on the Shanghai Stock Exchange and the Hong Kong Stock Exchange before and after the connection on November 17, 2014. We test whether this event led to a structural break. For this purpose, the volatility series are shown and analysed in more detail using two new models. We test both semiparametric GARCH extensions, the Semi-EGARCH based on the EGARCH model (Nelson, 1991) and the Semi-CGARCH model, based on the CGARCH (Engle & Lee, 1999). Both univariate models work with a constrained local linear estimator for the scale function and a fully data-driven algorithm developed under weak moment conditions. The proposed method is applied to the two major Asian financial indices and to stocks from the banking sector. Furthermore, our focus is to improve the quantitative risk management analysis. When a parametric GARCH model provides satisfactory results for the calculation of e.g the Value at Risk (VaR), semiparametric can also be applied to improve the quality of measurement. This article compares the results of various parametric and semiparametric approaches regarding the VaR to show how the extensions increase the performance.

https://doi.org/10.18488/journal.aefr.2020.104.427.438
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