Dynamic asymmetric spillovers and volatility interdependence on China's stock market.

In this paper, we developed a novel measure to quantify the asymmetries in volatility spillovers, which emerge due to negative and positive shocks. Using high-frequency data of ten CSI 300 sector indices from 2007 to 2016, we employ our method to analyze the asymmetries in volatility spillover and volatility interdependence on China's stock market at the sector level. We find that in general, the spillover from bad volatilities, which due to negative movements in returns, is considerably stronger than that from good volatilities due to positive returns. Except when the State Council of China announced the 4 trillion stimulus program in November 2008 and raised the total maximum QFII quota by $50 billion to $80 billion in April 2012, during which the good volatility dominated. Moreover, our empirical results reveal the asymmetric spillovers transmission mechanism. By decomposing the overall shock into macroeconomic shocks that affect all sectors and industrial shocks that only affect the specific sector, we found that rather than industrial shocks, the macroeconomic shocks dominate the asymmetries in spillover transmission. • A new spillover asymmetry measure is developed. • Connectedness on China's stock market at industry level is explored. • Asymmetric spillovers transmission mechanism is revealed. • The industrial and macroeconomic shocks on China's stock market are examined. • The spillover from bad volatilities is considerably stronger in general. [ABSTRACT FROM AUTHOR]