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A Time Series Analysis of the Shanghai and New York Stock Price Indices

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Author Info

  • Gregory C. Chow

    (Department of Economics, Princeton University)

  • Caroline C. Lawler

    (Department of Economics, Princeton University)

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    Abstract

    A time series analysis of the Shanghai and New York Stock Exchange composite price indices is provided to compare the weekly rates of return and volatilities of these two markets and to study their co-movement in 1992-2002. The rate of return and volatility of the Shanghai market were higher. The rates of returns in the two markets were approximately serially uncorrelated and mutually uncorrelated. Volatility, as measured by the absolute change in the rate of return, has positive serially correlations in both markets as expected, but the autoregressions are temporarily unstable. Surprisingly the volatility measures of the two markets are significantly negatively correlated. Volatility in each market was found to Granger cause volatility in the other market negatively. This spurious correlation is explained by the negative correlations of macroeconomic fundamentals in the United States and China as indicated by a negative correlation between the rates of change in their GDP while their capital markets are not integrated. The analysis has implications for the use of autoregressions and Granger causality tests, and the interpretation of spurious correlation.

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    Bibliographic Info

    Article provided by Society for AEF in its journal Annals of Economics and Finance.

    Volume (Year): 4 (2003)
    Issue (Month): 1 (May)
    Pages: 17-35

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    Handle: RePEc:cuf:journl:y:2003:v:4:i:1:p:17-35

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    Related research

    Keywords: Time series analysis; Rate of return; Volatility; Autoregressions; Granger causality; Spurious correlation; Shanghai stock price; New York stock price;

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    1. Geert Bekaert & Campbell R. Harvey, 1997. "Emerging Equity Market Volatility," NBER Working Papers 5307, National Bureau of Economic Research, Inc.
    2. Chow, Gregory C. & Fan, Zhao-zhi & Hu, Jin-yan, 1999. "Shanghai Stock Prices as Determined by the Present-Value Model," Journal of Comparative Economics, Elsevier, vol. 27(3), pages 553-561, September.
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    Cited by:
    1. Chow, Gregory C. & Liu, Changjiang & Niu, Linlin, 2011. "Co-movements of Shanghai and New York stock prices by time-varying regressions," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 577-583.
    2. David McMillan & Isabel Ruiz & Alan Speight, 2010. "Correlations and spillovers among three euro rates: evidence using realised variance," The European Journal of Finance, Taylor & Francis Journals, vol. 16(8), pages 753-767.
    3. David G. McMillan & Isabel Ruiz, 2009. "Volatility dynamics in three euro exchange rates: correlations, spillovers and commonality," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 1(1), pages 64-74.
    4. Frank J. Fabozzi & Radu Tunaru & Tony Wu, 2004. "Modeling Volatility for the Chinese Equity Markets," Annals of Economics and Finance, Society for AEF, vol. 5(1), pages 79-92, May.

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