The Impact of Psychological Factors on the Asymmetry of Stock Market Volatility in China—An Empirical Study Based on EGARCH Model

Tao Yang, Yanan Su


The asymmetry of stock market volatility has existed for a long time. Most of the early scholars’ research on this phenomenon is based on the assumption of efficient market. In recent years, with the development and deepening of behavioral finance theory, psychological factors have been added to the research process as an important variable to better explain the asymmetry of stock market volatility. Therefore, on the basis of this analysis, this paper uses the basic theories of overconfidence, disposal effect, herding effect and framing effect of behavioral finance to analyze the impact of different psychological conditions on stock market volatility. This paper collects all the closing price data of the Shanghai and Shenzhen 300 index, and processes the logarithmic rate of return, then introduces the proxy variable turnover rate of psychological factors into the mean equation of EGARCH model, establishes a modified EGARCH model, and obtains the empirical results that psychological factors do have an impact on the asymmetry of volatility in China’s stock market. It is concluded that: first, there is asymmetry of volatility in China’s stock market, Investors will respond significantly more to bad news than to good news. Second, when investors are hit by bad news, their expectations for the future become worse, which will increase the turnover rate and finally obtain a lower yield; When investors are hit by good news, their expectations for the future become better, which will reduce the turnover rate and finally obtain a higher yield. Finally, according to these two conclusions, positive and feasible suggestions are given.

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