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The role of Chinese stock market in global stock markets: A safe haven or a hedge?

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  • Lai, YiHao
  • Tseng, Jen-Ching
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    Abstract

    The contribution of the study is threefold. First, the paper proposes a new empirically testable definition for a safe haven and a hedge from the viewpoint of extreme and regular dependences measured by a modern statistical tool of copulas. Second, this paper investigates the extreme and regular dependences between the Chinese and the G7 stock markets, using a mixture copula specification, and the results reveal that the Chinese stock market has been not only a hedge but also a safe haven for the G7 stock markets all these years. Finally, this study suggests that the Chinese stock market is the target market for global stock fund managers and international investors, who are seeking a hedge or a safe haven for their portfolios, under turbulence.

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    File URL: http://www.sciencedirect.com/science/article/B6W4V-4XFFJTP-3/2/35a3880d50311bd816e0150f63195ee9
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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 19 (2010)
    Issue (Month): 2 (April)
    Pages: 211-218

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    Handle: RePEc:eee:reveco:v:19:y:2010:i:2:p:211-218

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: Chinese stock market Safe haven Hedge Copula;

    References

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    1. Andrew J. Patton, 2006. "Modelling Asymmetric Exchange Rate Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 527-556, 05.
    2. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, 05.
    3. Kaul, Aditya & Sapp, Stephen, 2006. "Y2K fears and safe haven trading of the U.S. dollar," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 760-779, August.
    4. Ling Hu, 2006. "Dependence patterns across financial markets: a mixed copula approach," Applied Financial Economics, Taylor & Francis Journals, vol. 16(10), pages 717-729.
    5. Chan, Kam C. & Fung, Hung-Gay & Thapa, Samanta, 2007. "China financial research: A review and synthesis," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 416-428.
    6. Xu, Cheng Kenneth, 2000. "The microstructure of the Chinese stock market," China Economic Review, Elsevier, vol. 11(1), pages 79-97.
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    Citations

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    Cited by:
    1. Zhang, Bing & Li, Xiao-Ming, 2014. "Has there been any change in the comovement between the Chinese and US stock markets?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 525-536.
    2. Mohamed El Hedi Arouri & Amine Lahiani & Duc Khuong Nguyen, 2014. "World gold prices and stock returns in China: insights for hedging and diversification strategies," Working Papers 2014-110, Department of Research, Ipag Business School.
    3. Wang, Kehluh & Chen, Yi-Hsuan & Huang, Szu-Wei, 2011. "The dynamic dependence between the Chinese market and other international stock markets: A time-varying copula approach," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 654-664, October.
    4. Lien, Donald & Chen, Yulu, 2010. "Recent development in China's financial markets: An introduction," International Review of Economics & Finance, Elsevier, vol. 19(2), pages 177-179, April.

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