Time-varying asymmetric volatility spillover between global markets and China's A, B and H-shares using EGARCH and DCC-EGARCH models

This paper investigates the volatility spillover and dynamic conditional correlation between three types of China's shares including A, B and H-shares with 12 major emerging and developed markets from 2002 to 2017 using EGARCH and multivariate DCC-EGARCH models. Both models found that Chinese equities are more related with their neighbouring countries such as Singapore, Japan, Australia and ASEAN-5 than with US, Germany and UK. The EGARCH model, with an auxiliary term added to capture the volatility spillover, found no volatility spillover between A-share markets and other advanced and emerging markets during the GFC and extended-crisis periods while this behaviour is not observed for B-share and H-share markets. However, the multivariate DCC model found strong evidence of contagion effect in both return correlations and volatility spillover for all China's markets. In addition, both models found increased regional and global integration in A-share and B-share markets but not the H-share market. Finally, the results from both models provide clear evidence of distinct behaviours associated with return and volatility spillover in these three share types, suggesting foreign investors should consider the heterogeneity in volatility spillover and return correlations of these Chinese share types when forming investment strategies.