Comparative Volatility Analysis of USA and China Stock Market Indices using GARCH Family Models

The goal of this article is to look into the movements of two economic powers, the United States America and China, as well as the volatility spillover between the United States of America and China. Furthermore, the objective of this research is to compare and contrast the accuracy of forecasts made using univariate volatility models with those made using the Normal, Student-t, and Generalized Error models. Studentt's Distribution with df and GED with Fixed Parameter Distribution, constructs in predicting stock volatility between the United States of America and China, based on 560 daily observations from the United States stock market (S&P 500 Index) and China's stock market (Shanghai Stock Exchange) (SSE Composite index and HANG SENG index).Advanced econometric models are used to achieve the research-based objectives i.e. The EGARCH (exponential generalized autoregressive conditional heteroscedastic) models (Chang, McAleer, & Tansuchat, 2012) have been applied to the data from January 27, 2000, to March 24, 2023. Asymmetry in volatility transmitting patterns, the movement of shocks with higher positive and negative magnitudes, and the model's suitability are all examined in the study. The potential benefits and dangers of investing are another focus of this empirical investigation. The fitness of financial series returns in the EGARCH model is one outcome. Other outcomes include the movement of financial series, volatility sketching, a description of the data and properties of the EGARCH model, and the fitness of series returns. The results show that, in the long run, the market in question is integrated. The results also demonstrate that the Chinese market mirrors the behaviour of the USA market and that investors have limited avenues for diversification at present. The results of the EGARCH model indicate that there were asymmetric volatility spillover effects between the USA and Chinese markets during the studied time periods. Based on a reliable technique that enables the examination of the dependence structure between the sample variables, this study also investigates co-movement in China. For investors looking for global investment diversification options, the findings offer helpful information. Keywords: volatility, forecasting, EGARCH models, stock market, co-movement, economic interdependence JEL classification: C5, C32, C58. E44, G15.