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International linkages of the Chinese stock exchanges: a multivariate GARCH analysis

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  • Hong Li
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    Abstract

    This paper examines the linkages between the two emerging stock exchanges in mainland China and the established markets in Hong Kong and in the US by a multivariate GARCH approach. We use a four-variable asymmetric GARCH in the line of the BEKK model proposed by Engle and Kroner (1995) to account for the regularities documented in the share price indices and test for the transmission of returns and volatility across the markets. While we do not find any evidence of a direct linkage between the stock exchanges in mainland China and the US market, we find evidence of uni-directional volatility spillovers from the stock exchange in Hong Kong to those in Shanghai and Shenzhen. However, the magnitude of the volatility linkages between the mainland and Hong Kong is small, indicating a weak integration of the Chinese stock exchanges with the regional developed market. The implication of the weak integration is that overseas investors will benefit from the reduction of diversifiable risk, and thus total portfolio risk, by adding the mainland Chinese stocks to their investment portfolio.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100600675557
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 17 (2007)
    Issue (Month): 4 ()
    Pages: 285-297

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    Handle: RePEc:taf:apfiec:v:17:y:2007:i:4:p:285-297

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    Cited by:
    1. repec:lan:wpaper:2594 is not listed on IDEAS
    2. 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.
    3. Chow, Gregory C & Liu, Changjiang & Niu, Linlin, 2011. "Co-movements of Shanghai and New York Stock prices by time-varying regressions," BOFIT Discussion Papers 16/2011, Bank of Finland, Institute for Economies in Transition.
    4. David E. Giles & Yanan Li, 2013. "Modelling Volatility Spillover Effects Between Developed Stock Markets and Asian Emerging Stock Markets," Econometrics Working Papers 1301, Department of Economics, University of Victoria.
    5. Prakash L. Dheeriya & Fahimeh Rezayat & Burhan F. Yavas, 2014. "Relations between Volatility and Returns of Exchange Traded Funds of Emerging Markets and of USA," Review of Economics & Finance, Better Advances Press, Canada, vol. 4, pages 44-46, Feburary.
    6. Valadkhani, Abbas & O'Brien, Martin & Karunanayake, Indika, 2009. "Modelling Australian Stock Market Volatility: A Multivariate GARCH Approach," Economics Working Papers wp09-11, School of Economics, University of Wollongong, NSW, Australia.
    7. Babeckii, Ian & Komárek, Luboš & Komárková, Zlatuše, 2012. "Integration of Chinese and Russian stock markets with world markets: National and sectoral perspectives," BOFIT Discussion Papers 4/2012, Bank of Finland, Institute for Economies in Transition.
    8. Cai, Charlie X. & McGuinness, Paul B. & Zhang, Qi, 2011. "The pricing dynamics of cross-listed securities: The case of Chinese A- and H-shares," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2123-2136, August.
    9. de Bondt, Gabe & Peltonen, Tuomas A. & Santabárbara, Daniel, 2010. "Booms and busts in China's stock market: Estimates based on fundamentals," Working Paper Series 1190, European Central Bank.
    10. repec:wyi:journl:002146 is not listed on IDEAS
    11. repec:lan:wpaper:2371 is not listed on IDEAS
    12. S Zhang & I Paya & D Peel, 2009. "Linkages between Shanghai and Hong Kong stock indices," Working Papers 599248, Lancaster University Management School, Economics Department.
    13. Li, Hong, 2012. "The impact of China's stock market reforms on its international stock market linkages," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(4), pages 358-368.
    14. repec:lan:wpaper:2452 is not listed on IDEAS
    15. M. Fatih Oztek & Nadir Ocal, 2012. "Integration of China Stock Markets with International Stock Markets: An application of Smooth Transition Conditional Correlation with Double Transition Functions," ERC Working Papers 1209, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
    16. Long, Ling & Tsui, Albert K. & Zhang, Zhaoyong, 2014. "Conditional heteroscedasticity with leverage effect in stock returns: Evidence from the Chinese stock market," Economic Modelling, Elsevier, vol. 37(C), pages 89-102.

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