The Impact of Volatility Index on China’s Stock Market

Abstract

As global economic integration quickens its pace, economies and trades
between China and the United States grow more interactive, resulting in a
clear impact on China’s stock market. The Chicago Board Options Exchange
Market Volatility Index (VIX) reflects stock market volatility in the United
States and represents investors’ expectation of the stock market by its
American counterpart. Different from prior studies of stock markets in China
and the United States, this paper focuses on the VIX to determine its impact
on the CSI 300 Index. Our purpose is twofold: to determine whether the VIX
influences the volatility of the CSI 300 index and to analyze the extent to
which the VIX influences the rate of return of the Chinese stock market.
Using a GARCH model, we find that the VIX is positively correlated with the
volatility of the Chinese stock markets and that a leverage effect exists
between them. A vector autoregression model shows that the VIX exerts
negative impact on the CSI300 index. The capital asset pricing model shows
that the VIX rises with the decline of the rate of return of individual shares in
the hi-tech industries. The results provide both a better management of
China stock market vitality and strategic suggestions regarding investment.