China’s financial linkages with Asia and the global financial crisis
AbstractThis paper presents empirical evidence on asset market linkages between China and Asia and how these linkages have shifted during and after the global financial crisis of 2008-2009. We find only weak cross-country linkages in longer-term interest rates, but much stronger linkages in equity markets. This finding is consistent with the greater development and liberalization of equity markets relative to bond markets in China, as well as increasing business and trade linkages in the region. We also find that the strength of the correlation of equity prices changes between China and other Asia countries increased markedly during the crisis and has remained high in recent years. We attribute this development to greater “attentiveness” of international investors to China’s role as a source and destination of equity finance during the crisis rather than to any greater financial deepening and liberalization, as China did not implement any major policy measures during this period. By contrast, the transmission of U.S. equity returns to Asian countries decreased after the crisis.
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Bibliographic InfoPaper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2013-12.
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-30 (All new papers)
- NEP-CWA-2013-06-30 (Central & Western Asia)
- NEP-FMK-2013-06-30 (Financial Markets)
- NEP-IFN-2013-06-30 (International Finance)
- NEP-OPM-2013-06-30 (Open Economy Macroeconomic)
- NEP-SEA-2013-06-30 (South East Asia)
- NEP-TRA-2013-06-30 (Transition Economics)
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