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Hong Kong's Financial Market Interactions with the US and Mainland China in Crisis and Tranquil Times

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Author Info

  • Dong He

    (Research Department, Hong Kong Monetary Authority)

  • Zhiwei Zhang

    (Research Department, Hong Kong Monetary Authority)

  • Honglin Wang

    (Research Department, Hong Kong Monetary Authority)

Abstract

This paper studies how financial markets in the US and Mainland China affected equity, money and foreign exchange markets in Hong Kong on daily basis during the current financial crisis, and how these financial linkages have changed compared with the experience in 2001. In the equity markets, the influence of the Mainland on Hong Kong has increased substantially in the current financial crisis, but it is still less important than that of the US. In the money market, correlation between HIBOR and LIBOR has picked up from the low levels observed during the tranquil period before the crisis, to almost the same level of correlation as observed during the IT bubble burst. In the foreign exchange market, the daily movements of the Hong Kong dollar/US dollar exchange rate have been rather small and mainly influenced by the short-term interest rates. Fund flows in different directions might have neutralised the impact of other markets on the foreign exchange market. A broad interpretation of these findings is that Hong Kong financial markets appear to be more aligned with the US markets in turbulent times, but relatively more integrated with the Mainland markets during the tranquil periods.

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File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP09_10_full.pdf
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Bibliographic Info

Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 0910.

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Length: 27 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:hkg:wpaper:0910

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Related research

Keywords: Financial markets interactions; Financial crisis;

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References

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  1. Dong He & Frank Leung & Philip Ng, 2007. "How Do Macroeconomic Developments in Mainland China Affect Hong Kong's Short-term Interest Rates?," Working Papers 0717, Hong Kong Monetary Authority.
  2. He, Dong, 2008. "Macroeconomic Linkages between Hong Kong and Mainland China," MPRA Paper 9992, University Library of Munich, Germany.
  3. Frank Leung & Philip Ng, 2008. "Impact of IPO Activities on the Hong Kong Dollar Interbank Market," Working Papers 0811, Hong Kong Monetary Authority.
  4. Genberg, Hans & He, Dong & Leung, Frank, 2007. "Recent Performance Of The Hong Kong Dollar Linked Exchange Rate System," MPRA Paper 9440, University Library of Munich, Germany.
  5. Hans Genberg & Cho-hoi Hui, 2009. "The Credibility of the Link from the Perspective of Modern Financial Theory," Working Papers 0902, Hong Kong Monetary Authority.
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Cited by:
  1. Kuang-Liang Chang & Nan-Kuang Chen & Charles Ka Yui Leung, 2012. "In the shadow of the United States: the international transmission effect of asset returns," Globalization and Monetary Policy Institute Working Paper 121, Federal Reserve Bank of Dallas.

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