Research on Return Volatility of Shenzhen Stock Exchange Component Index Based on GARCH Model

Abstract

Volatility has been an interesting and important topic in finance filed, especially for the financial time series research. In recent years, stock market volatility has been a prominent research area due to its critical role in financial decision-making and risk management. In the context of China's rapidly evolving financial markets, the Shenzhen Stock Exchange Composite Index (SZSE Component Index) is a key benchmark reflecting the performance of the country's emerging and high-growth enterprises. This paper use GARCH model, TGARCH and EGARCH to test the volatility of Shenzhen Stock Exchange Component Index. The research conclude that leverage effect and asymmetric effect exist, implying that investors react differently to positive and negative news. Finally, based on the results, it is recommended that government and related institutions should keep strong supervision on the market, improve information transparency by asking for more information disclosure from corporations.