Abstract
The paper aims to research positive feedback trading behaviour and its effect on the market fluctuations in Chinese stock market, and the relation between the level of market fluctuations and autocorrelation coefficient of market yields. It uses the data of daily close price of Shenzhen Component from August 22, 1996 to May 16, 2012 and finds severe boom and slump in Shenzhen stock market, notable non-normal distribution and ARCH effect. By combining the positive feedback trading model and EGARCH Model, the ARCH Regression result suggests: (1) there exists positive feedback traders in Chinese stock market who makes market returns fluctuate severely; (2) the relation is negative between the market fluctuation and autocorrelation coefficient of market yields; (3) the asymmetry and leverage effect will make Chinese stock market have greater fluctuation during descendant periods than rising periods.
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