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Shanghai Stock Exchange Composite Index and Bank Stock Prices in China: A Causality Analysis

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  • Shujie Yao
  • Dan Luo
  • Stephen Morgan

Abstract

This paper analyzes empirically the relationship between the Shanghai Stock Exchange (SSE) Composite Index and the indexes of 10 Chinese listed banks to test whether the listing of these banks had played a role in leading the Chinese stock market. Using daily prices from 1 June 2006 to 15 November 2007, we applied the Granger causality test and found that a uni-directional causality relationship existed either way between most bank stock prices and the market index while the bi-directional relationship only identified among five of the ten banks. This research finding is in part consistent with previous studies showing that stock markets in great China region are integrated and are strongly influenced by the psychological factors of investors. In the following co-integration test, both AEG and Johansen’s methods concluded a long-run stable equilibrium relationship between majority of the banking stock prices and the SSE Composite Index.

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Bibliographic Info

Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 08/25.

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Handle: RePEc:not:notgep:08/25

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Keywords: Shanghai Stock Exchange; VAR; Johansen co-integration tests; Granger causality tests;

References

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Cited by:
  1. Burdekin, Richard C.K. & Redfern, Luke, 2009. "Sentiment effects on Chinese share prices and savings deposits: The post-2003 experience," China Economic Review, Elsevier, vol. 20(2), pages 246-261, June.
  2. Dan Luo & Shujie Yao, . "World Financial Crisis and the Rise of Chinese Commercial Banks," Discussion Papers 09/08, University of Nottingham, GEP.

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