Volatility of China Shanghai Stock Price-Exchange Rate

This paper examines the use of GARCH-type models for modelling volatility and explaining relationship between stock market risk and exchange rate risk in CHINA. We use daily data from China Shanghai A Stock Price and Exchange Rate. Various time series methods are employed, including the simple GARCH model, as well as exponential GARCH, threshold GARCH. We find strong evidence that daily returns can be characterised by the above models. For both markets, we conclude that the best model is GARCH (1,1)and the asymmetric effect is not significant. These findings are strongly recommended to financial managers and modellers dealing with international markets.