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Contagion effect of the European financial crisis on China's stock markets: Interdependence and pure contagion

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  • Shen, Pei-Long
  • Li, Wen
  • Wang, Xiao-Ting
  • Su, Chi-Wei

Abstract

This paper examines the contagion effect of the European debt crisis on China's stock market. The analysis tests pure contagion effects and interdependence by utilizing the Kalman filter approach to estimate the time-varying correlation coefficients of the stock market indices between the Eurozone and China. The empirical results indicate that after controlling the macro fundamental variables and global shocks, the crisis contagion's effect on investors' psychology in the Chinese capital market is limited. The result of variance analysis demonstrates that macroeconomic variables have played a major role in stock market between China and the Eurozone. The model provides a mechanism for tracing the time varying correlation coefficients in a structured way after controlling the fundamental variables and global shocks and can reflect the changing market dynamics accurately.

Suggested Citation

  • Shen, Pei-Long & Li, Wen & Wang, Xiao-Ting & Su, Chi-Wei, 2015. "Contagion effect of the European financial crisis on China's stock markets: Interdependence and pure contagion," Economic Modelling, Elsevier, vol. 50(C), pages 193-199.
  • Handle: RePEc:eee:ecmode:v:50:y:2015:i:c:p:193-199
    DOI: 10.1016/j.econmod.2015.06.017
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    1. repec:eee:phsmap:v:480:y:2017:i:c:p:10-21 is not listed on IDEAS
    2. Noureddine BENLAGHA & Slim MSEDDI, 2016. "The Macroeconomic And Financial Impacts Of European Crisis On Saudi Arabia," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 16(1).
    3. Yang, Lu & Cai, Xiao Jing & Zhang, Huimin & Hamori, Shigeyuki, 2016. "Interdependence of foreign exchange markets: A wavelet coherence analysis," Economic Modelling, Elsevier, vol. 55(C), pages 6-14.
    4. Akhtaruzzaman, Md & Shamsuddin, Abul, 2016. "International contagion through financial versus non-financial firms," Economic Modelling, Elsevier, vol. 59(C), pages 143-163.

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