The microstructure of the Chinese stock market

The auction principles, clearance, settlement, and depository (CSD) facilit ies of the Chinese stock market are described. An autoregressive model is f ound to characterize the time series properties of stock returns and volati lity in the Shanghai market reasonably well. The extremely high volatility of the market is explained well by its lagged volatilities along with tradi ng volumes. Further scrutiny reveals that trading volumes and volatility ar e endogenous in a vector autoregressive process (VAR) system for the Shangh ai Composite Index (SHCI). Foreign shares are found to behave differently f rom domestic shares in several respects. (C) 2000 Elsevier Science Inc. All rights reserved.