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Effects of the open policy on the dependence between the Chinese 'A' stock market and other equity markets: An industry sector perspective

Author

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  • Luo, Weiwei
  • Brooks, Robert D.
  • Silvapulle, Param

Abstract

This paper investigates the effect of the open policy introduced in 2002 to allow foreigners to invest in the Chinese 'A' share market on the Chinese domestic capital market, especially on the dependence between the financial index returns of the 'A' shares and those of some emerging markets, specifically Hong Kong, Singapore, Thailand, Korea and Taiwan as well as the developed markets US, Japan and Australia. The results of nonparametric plots and copula model estimates of these dependence structures provide evidence of weak dependence in these markets before the introduction of the open policy, except for the US and Japan, and the tail dependence is found to be insignificant for all country pairs. These dependence structures are adequately captured by Clayton and normal copula models. On the other hand, in the period 2002-2009, there is significant dependence in all but the Korean market, as indicated by Symmetric Joe-Clayton, Clayton and rotated Gumbel copula models. Further, the significant lower tail dependence of the 'A' shares with other markets was found, except for the US, Japan and Korea, which indicates that the financial sectors returns in these five pair markets move downwards together. These findings have implications for international portfolio diversification and financial market participants.

Suggested Citation

  • Luo, Weiwei & Brooks, Robert D. & Silvapulle, Param, 2011. "Effects of the open policy on the dependence between the Chinese 'A' stock market and other equity markets: An industry sector perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(1), pages 49-74, February.
  • Handle: RePEc:eee:intfin:v:21:y:2011:i:1:p:49-74
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. He, Hongbo & Chen, Shou & Yao, Shujie & Ou, Jinghua, 2014. "Financial liberalisation and international market interdependence: Evidence from China’s stock market in the post-WTO accession period," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 434-444.
    2. Li, Hong, 2012. "The impact of China's stock market reforms on its international stock market linkages," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(4), pages 358-368.
    3. Lee, Chien-Chiang & Chang, Chi-Hung & Chen, Mei-Ping, 2015. "Industry co-movements of American depository receipts: Evidences from the copula approaches," Economic Modelling, Elsevier, vol. 46(C), pages 301-314.
    4. Lee, Chien-Chiang & Chen, Mei-Ping & Chang, Chi-Hung, 2014. "Industry co-movement and cross-listing: Do home country factors matter?," Japan and the World Economy, Elsevier, vol. 32(C), pages 96-110.
    5. repec:eee:phsmap:v:480:y:2017:i:c:p:10-21 is not listed on IDEAS
    6. Ye, George L., 2014. "The interactions between China and US stock markets: New perspectives," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 331-342.
    7. Li, Hong, 2013. "Integration versus segmentation in China's stock market: An analysis of time-varying beta risks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 88-105.
    8. He, Hongbo & Chen, Shou & Yao, Shujie & Ou, Jinghua, 2015. "Stock market interdependence between China and the world: A multi-factor R-squared approach," Finance Research Letters, Elsevier, vol. 13(C), pages 125-129.

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