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Spillovers of the U.S. Subprime Financial Turmoil to Mainland China and Hong Kong SAR

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  • Xiaojing Zhang
  • Tao Sun
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Abstract

This paper focuses on evidence from stock markets as it investigates the spillovers from the United States to mainland China and Hong Kong SAR during the subprime crisis. Using both univariate and multivariate GARCH models, this paper finds that China''s stock market is not immune to the financial crisis, as evidenced by the price and volatility spillovers from the United States. In addition, HK''s equity returns have exhibited more significant price and volatility spillovers from the United States than China''s returns, and past volatility shocks in the United States have a more persistent effect on future volatility in HK than in China, reflecting HK''s role as an international financial center. Moreover, the impact of the volatility from the United States on China''s stock markets has been more persistent than that from HK, due mainly to the United States as the origin of the subprime crisis. Finally, as expected, the conditional correlation between China and HK has outweighed their conditional correlations with the United States, echoing increasing financial integration between China and HK.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/166.

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Length: 42
Date of creation: 01 Aug 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/166

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Keywords: Spillovers; Credit risk; Economic models; External shocks; Financial sector; Stock markets; Stock prices; standard error; stock market; equations; correlation; survey; financial market; stock price; equation; statistics; financial markets; standard errors; correlations; covariance; financial institutions; heteroscedasticity; kurtosis; surveys; skewness; stock returns; bond; financial contagion; bonds; hedge; hedge funds; stock price indices; financial system; probability; financial stability; financial market development; correlation analysis; stock exchange; optimization; emerging stock market; equity market; financial systems; financial stock; independent variable; international capital; independent variables; explanatory power; stock price series; credit derivatives; stock market development; predictions; stock market price; equity markets; financial globalization; international capital markets; mortgage bonds; econometrics; autocorrelation; prediction; financial resources; emerging stock markets; number of parameters; financial volatility; statistical methods; stock price volatility; vector autoregression; statistically significant effect; deposit insurance; stock market prices;

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References

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