In this paper, multivariate GARCH (MGARCH) models are used to examine the volatility transmission between the Shanghai and Shenzhen stock markets. We show that there is an asymmetry in the predictability of the volatility of the two markets for the 1997-2003 period: Evidence of price volatility spillovers from Shanghai to Shenzhen is observed but no volatility spillover effect in the opposite direction is found. We further show that this kind of asymmetry exists mainly after September 2000 when Shenzhen suspended A-share IPOs. For the pre-September 2000 period, however, there has no much significant volatility transmission across the two exchanges and only weak volatility spillover effects from Shenzhen to Shanghai are found. The findings suggest that the suspension of IPOs in the Shenzhen Exchange maybe reversed the direction of volatility spillovers across the two markets. As a result, the Shanghai Exchange has gradually obtained its leading status in terms of information transmission.
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