Inter-industry volatility patterns in Chinese stock market

This paper mainly investigates the ranking stability of short run volatilities of industrial stock price indices, which is a sort of inter-industry volatility pattern. The whole time span is divided into periods. For each period, four well-constructed volatility measures are used to estimate the industrial short run volatilities. The total volatilities are decomposed into industry-unique and market-related components. Then Kendall´s coefficient of concordance is utilized to test whether the cross-sectional volatility ranking of different industrial indices remains stable over time. The empirical research work using real data from Shenzhen Stock Exchange shows that in Chinese stock market, the ranking of total volatilities of industrial indices is consistent from period to period. From the volatility decomposition, it is indicated that the ranking of market-related volatilities is not stable while the ranking of industry-unique parts is highly significantly consistent. This provides useful information for the formulation of investment strategies and portfolio management.