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Financial liberalization and cross-border market integration: Evidence from China's stock market

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  • Yao, Shujie
  • He, Hongbo
  • Chen, Shou
  • Ou, Jinghua

Abstract

Using the weak-form measure, this paper derives a normalized index to study the impact of China's financial liberalization policies on its stock market integration with the rest of the world during 2000–2015. It reveals that the Chinese stock markets in general have become more integrated with the world markets irrespective of significant fluctuations. In particular, it is found that QFII, QDII and RQFII have consistent and positive effects on market integration but other policy reforms act negatively. Some de jure policy reforms, such as the RMB exchange rate liberalization, are found to have varying effects depending on other market conditions.

Suggested Citation

  • Yao, Shujie & He, Hongbo & Chen, Shou & Ou, Jinghua, 2018. "Financial liberalization and cross-border market integration: Evidence from China's stock market," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 220-245.
    • Handle: RePEc:eee:reveco:v:58:y:2018:i:c:p:220-245
    DOI: 10.1016/j.iref.2018.03.023
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    More about this item

    Keywords

    Financial liberalization; Market integration; Stochastic discount factor; The weak-form measure;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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