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A Time-Series Analysis of the Shanghai and New York Stock Price Indices

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  • Gregory C. Chow

    (Princeton University)

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    Abstract

    A time series analysis of the Shanghai and New York Stock Exchange composite price indices is provided to compare the weekly rates of return and volatilities of these two markets and to study their co-movement in 1992-2002. The rate of return and volatility of the Shanghai market were higher. The rates of returns in the two markets were approximately serially uncorrelated and mutually uncorrelated. Volatility, as measured by the absolute change in the rate of return, has positive serially correlations in both markets as expected, but the autoregressions are temporarily unstable. Most surprisingly the volatility measures of the two markets are significantly negatively correlated. Volatility in each market was found to Granger cause volatility in the other market negatively. This spurious correlation is explained by the negative correlations of macroeconomic fundamentals in the United States and China as indicated by a negative correlation between the rates of change in their GDP while their capital markets are not integrated. The analysis has implications for the use of autoregressions and Granger causality tests, and the interpretation of spurious correlation.

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    File URL: http://128.118.178.162/eps/get/papers/0306/0306008.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series General Economics and Teaching with number 0306008.

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    Length: 21 pages
    Date of creation: 10 Jun 2003
    Date of revision:
    Handle: RePEc:wpa:wuwpgt:0306008

    Note: 21 pages
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    Web page: http://128.118.178.162

    Related research

    Keywords: Time series analysis; Rate of return; Volatility; Autogressions; Granger causality; Spurious correlation; Shanghai stock price; New York stock price;

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    References

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    1. Chow, Gregory C. & Fan, Zhao-zhi & Hu, Jin-yan, 1999. "Shanghai Stock Prices as Determined by the Present-Value Model," Journal of Comparative Economics, Elsevier, vol. 27(3), pages 553-561, September.
    2. Yao, Chengxi, 1998. "Stock Market and Futures Market in the People's Republic of China," OUP Catalogue, Oxford University Press, number 9780195907254, September.
    3. Geert Bekaert & Campbell R. Harvey, 1995. "Emerging Equity Market Volatility," NBER Working Papers 5307, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Frank J. Fabozzi & Radu Tunaru & Tony Wu, 2004. "Modeling Volatility for the Chinese Equity Markets," Annals of Economics and Finance, Society for AEF, vol. 5(1), pages 79-92, May.

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