We find that the asymmetric volatility phenomenon is reversed in the Shanghai Stock Exchange during bull markets. That is, volatility increases more with good news than with bad news. This evidence is inconsistent with the US markets (Wu 2001, and Bae, Kim and Nelson 2007). Further examination of this phenomenon reveals that the positive impact of good news on volatility is driven by return chasing behaviour of investors in large stocks during bull markets. We also find that volatility increases after stock price declines in bear markets especially for small stocks. This increase in volatility of small stocks after bad news in bear markets is partly driven by liquidity. After controlling for liquidity shifts, there are no significant patterns in the volatility of small stocks during bear markets. We posit that institutional and behavioural factors are the major driving forces of observed volatility patterns in Chinese stock market.