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Co-movements of Shanghai and New York Stock prices by time-varying regressions

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  • Chow, Gregory C

    ()
    (BOFIT)

  • Liu, Changjiang

    (BOFIT)

  • Niu, Linlin

    (BOFIT)

Abstract

We estimate a time-varying regression model to study the relationship between returns in the Shanghai and New York stock markets, with possible inclusion of lagged returns. The parameters of the regressions reveal that the effect of the current stock return for New York on that for Shanghai steadily increases after the 1997 Asian financial crisis and turns significantly and persistently positive after 2002, when China entered WTO. The effect of the current return for Shanghai on New York also becomes significantly positive and increasing after 2002. The upward trend has been interrupted during the recent global financial crisis, but reaches the level of about 0.4 to 0.5 in 2010 for both markets. Our results show that China’s stock market has become more and more integrated into the world market in the past twenty years, with interruptions occurring during the recent global economic downturn.

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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 16/2011.

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Length: 20 pages
Date of creation: 22 Aug 2011
Date of revision:
Handle: RePEc:hhs:bofitp:2011_016

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
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Keywords: China; globalization; rate of return; stock markets; time-varying parameter regression;

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  1. Groenwold, Nicolaas & Tang, Sam Hak Kan & Wu, Yanrui, 2004. "The dynamic interrelationships between the greater China share markets," China Economic Review, Elsevier, vol. 15(1), pages 45-62, January.
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  3. repec:lan:wpaper:2371 is not listed on IDEAS
  4. Hwahsin Cheng & John Glascock, 2005. "Dynamic Linkages Between the Greater China Economic Area Stock Markets—Mainland China, Hong Kong, and Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 24(4), pages 343-357, June.
  5. Engle, Robert F & Ito, Takatoshi & Lin, Wen-Ling, 1990. "Meteor Showers or Heat Waves? Heteroskedastic Intra-daily Volatility in the Foreign Exchange Market," Econometrica, Econometric Society, vol. 58(3), pages 525-42, May.
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  7. Ghosh, Asim & Saidi, Reza & Johnson, Keith H, 1999. "Who Moves the Asia-Pacific Stock Markets--US or Japan? Empirical Evidence Based on the Theory of Cointegration," The Financial Review, Eastern Finance Association, vol. 34(1), pages 159-70, February.
  8. S Zhang & I Paya & D Peel, 2009. "Linkages between Shanghai and Hong Kong stock indices," Working Papers 599248, Lancaster University Management School, Economics Department.
  9. repec:lan:wpaper:2594 is not listed on IDEAS
  10. Gregory C. Chow & Caroline C. Lawler, 2003. "A Time Series Analysis of the Shanghai and New York Stock Price Indices," Annals of Economics and Finance, Society for AEF, vol. 4(1), pages 17-35, May.
  11. Hong Li, 2007. "International linkages of the Chinese stock exchanges: a multivariate GARCH analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 17(4), pages 285-297.
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