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What influences stock market co-movements between China and its Asia-Pacific trading partners after the Global Financial Crisis?

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  • Shi, Yujie

Abstract

This paper investigates the stock market co-movements between China and its 12 trading partners in the Asia-Pacific region after the Global Financial Crisis. The Dynamic Conditional Correlation (DCC) - Mixed Data Sampling (MIDAS) model is adopted to extract short and long-run correlations. The author utilizes the weekly conditional correlations to detect contagion and explores transmission mechanisms by regressing the monthly economic and financial variables on the monthly conditional correlations. The empirical results show that recent events (specifically, the Shanghai stock market crash, the US-China tariff war, and the COVID-19 pandemic) have increased the contagion incidences across the stock markets in China and its trading partners. Moreover, bilateral trade and market similarities are major drivers of stock market co-movements between China and developed partners as well as between China and emerging partners. Apart from country-pair-specific factors, common factors (such as the Chinese illiquidity pressure) also affect the co-movements between Chinese and its partners' stock markets during the whole and turmoil periods. Besides, the regression results for contagion episodes are mixed. On the one hand, stock market co-movements are irrelevant to most economic fundamentals, indicating pure contagion. On the other hand, differences in industrial production growth and market size affect stock market co-movements between China and its emerging partners.

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  • Shi, Yujie, 2022. "What influences stock market co-movements between China and its Asia-Pacific trading partners after the Global Financial Crisis?," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:pacfin:v:72:y:2022:i:c:s0927538x22000178
    DOI: 10.1016/j.pacfin.2022.101722
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    More about this item

    Keywords

    Stock market co-movement; Contagion; Transmission mechanism; Shanghai stock market crash; US-China tariff war; COVID-19 pandemic;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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