Volatility and returns of the New Third Board market in China

Abstract

In this paper, we analyze the return–volatility relation for the New Third Board market in China. Various properties for cross sectional (daily and weekly) returns and volatility are obtained and interpreted. The cross sectional return–volatility relations are analyzed at a weekly frequency and the evidence of a negative relation between the returns and the future changes of volatility is found. The contemporaneous relation between returns and volatility is positive. The relation between returns and one-week-ahead volatility is much weaker. The size effect with return–volatility relation is opposite with that of Duffee's2 finding for the New York Stock Exchange 1977–1991. The comprehensive and systemic information about stock returns and volatility and their relations given in this paper can assist investors and researchers better understand this new financial market in China.

Keywords

• Volatility
• Stock returns
• New Third Board in China