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The Effectiveness of Regulatory Policy Changes on the Volatility Dynamics of the Chinese Stock Markets

We investigate the effectiveness of two recent regulatory policy changes on the volatility dynamics of the Chinese A- and B-share markets. The opening of the B-share market to domestic Chinese investors significantly increases the dynamic conditional correlation between the two markets. Results from the GJR (Glosten, Jagannathan, and Runkle) model with dummy variables and the Markov switching model of Hamilton (1994) indicate a shift to a low-volatility regime in the B-share market. However, the subsequent opening of the A-share market to foreign investors has no measurable effect on volatility.