The financial integration of China: New evidence on temporally aggregated data for the A-share market
AbstractIn spite of high trade openness, existing empirical work, using daily data, has not found any evidence of international financial integration of China. In this paper we examine to what extent the Chinese A-share market, de jure protected from foreign influences by capital controls, is actually integrated with global or regional markets. We study a long sample (October 1992 through March 2005) of active trading, within the framework of a regime-switching error correction model. We confirm the role of temporal aggregation in cointegration tests. With daily or mid-week closing prices, we do not find any long run relationship with either the New York or the Hong Kong market, thus replicating previous findings. However, the use of weekly averaged prices implies that, up to late 1996, the Shanghai A-share market index was cointegrated with the S&P500. Subsequently, this relationship broke down and a long run relationship with the Hang Seng index gradually arose. Information flows, as well as the prospects of de jure financial opening, and the growing awareness of valuation concepts among Chinese domestic investors, in the presence of multiple listing of Mainland firms, help explain the evidence of financial integration in spite of capital controls
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Bibliographic InfoPaper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 160.
Date of creation: 02 Feb 2007
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China's A-share market; Markov-switching ECM; temporal aggregation; international financial integration;
Other versions of this item:
- Girardin, Eric & Liu, Zhenya, 2007. "The financial integration of China: New evidence on temporally aggregated data for the A-share market," China Economic Review, Elsevier, vol. 18(3), pages 354-371.
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-09 (All new papers)
- NEP-CNA-2007-04-09 (China)
- NEP-TRA-2007-04-09 (Transition Economics)
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