Volatility and returns of the New Third Board market in China

In this paper, we analyze the return-volatility relation for the New Third Board market in China. Various properties for cross sectional (daily and weekly) returns and volatility are obtained and interpreted. The cross sectional return-volatility relations are analyzed at a weekly frequency and the evidence of a negative relation between the returns and the future changes of volatility is found. The contemporaneous relation between returns and volatility is positive. The relation between returns and one-week-ahead volatility is much weaker. The size effect with return-volatility relation is opposite with that of Duffee's2 finding for the New York Stock Exchange 1977-1991. The comprehensive and systemic information about stock returns and volatility and their relations given in this paper can assist investors and researchers better understand this new financial market in China.