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The effect of China's stock market reforms on market interdependence

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  • Li, Hong

    (Kingston University London)

Abstract

This paper investigates stock market interdependence between China, Korea, Japan and the US with particular attention to the impact of the Chinese reforms within a 4x4 asymmetric GARCH-BEKК framework. We find a bi-directional market linkage between China and the US and uni-directional linkages from China to Korea and Japan during 1992-2010. However, the market interdependence between China and the US remains weak while China is increasingly integrated with the regional markets. The five major reform policies under study are significant in altering the extent of the market interdependence, but it is trade links as well as the reforms that strengthen the regional market integration during 2003-2010 and stock market volatility that increases the market interdependence between China and the US during 2008-2010 The weak market integration with the US limits the destabilising effect on China although negative shock propagation was found from the US to China during the latest financial crises.

Suggested Citation

  • Li, Hong, 2010. "The effect of China's stock market reforms on market interdependence," Economics Discussion Papers 2010-4, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2010_004
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    File URL: http://eprints.kingston.ac.uk/16241/
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    More about this item

    Keywords

    multivariate GARCH models; asymmetric response of volatility; volatility spillovers; stock markets linkages; time-varying market integration; stock market liberalisation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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