IDEAS home Printed from https://ideas.repec.org/a/eee/mulfin/v18y2008i3p276-289.html
   My bibliography  Save this article

Policy change and lead-lag relations among China's segmented stock markets

Author

Listed:
  • Qiao, Zhuo
  • Li, Yuming
  • Wong, Wing-Keung

Abstract

This paper uses linear and nonlinear Granger causality tests to study the lead-lag relations among China's segmented stock markets. In contrast to the weak lead-lag relation among A- and B-share markets disclosed by its linear counterpart, a nonlinear causality test provides evidence of strong bi-directional causal relations between two A-share markets as well as between two B-share markets. In addition, the evidence shows that since the implementation of a new policy allowing domestic citizens to invest in B-share markets, A-share markets tend to lead their B-share counterparts in the same stock exchange and B-share markets continue to lead the H-share market.

Suggested Citation

  • Qiao, Zhuo & Li, Yuming & Wong, Wing-Keung, 2008. "Policy change and lead-lag relations among China's segmented stock markets," Journal of Multinational Financial Management, Elsevier, vol. 18(3), pages 276-289, July.
    • Handle: RePEc:eee:mulfin:v:18:y:2008:i:3:p:276-289
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042-444X(07)00057-6
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andre H. Gao & George H. K. Wang, 1999. "Modeling nonlinear dynamics of daily futures price changes," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(3), pages 325-351, May.
    2. Andy C. W. Chui & Chuck C. Y. Kwok, 1998. "Cross-Autocorrelation Between A Shares And B Shares In The Chinese Stock Market," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(3), pages 333-353, September.
    3. Stulz, René M, 1995. "Foreign Equity Investment Restrictions, Capital Flight, and Shareholder Wealth Maximization," CEPR Discussion Papers 1208, C.E.P.R. Discussion Papers.
    4. Ming-Shiun Pan & Kam C. Chan & David J. Wright, 2001. "Divergent Expectations And The Asian Financial Crisis Of 1997," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(2), pages 219-238, June.
    5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    6. Brennan, Michael J & Cao, H Henry, 1997. "International Portfolio Investment Flows," Journal of Finance, American Finance Association, vol. 52(5), pages 1851-1880, December.
    7. Lo, Andrew W & MacKinlay, A Craig, 1990. "When Are Contrarian Profits Due to Stock Market Overreaction?," The Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 175-205.
    8. Mech, Timothy S., 1993. "Portfolio return autocorrelation," Journal of Financial Economics, Elsevier, vol. 34(3), pages 307-344, December.
    9. Chui, Andy C W & Kwok, Chuck C Y, 1998. "Cross-Autocorrelation between A Shares and B Shares in the Chinese Stock Market," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(3), pages 333-353, Fall.
    10. Li, Yuming & Yan, Daying & Greco, Joe, 2006. "Market segmentation and price differentials between A shares and H shares in the Chinese stock markets," Journal of Multinational Financial Management, Elsevier, vol. 16(3), pages 232-248, July.
    11. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    12. Tarun Chordia & Bhaskaran Swaminathan, 2000. "Trading Volume and Cross‐Autocorrelations in Stock Returns," Journal of Finance, American Finance Association, vol. 55(2), pages 913-935, April.
    13. Chakravarty, Sugato & Sarkar, Asani & Wu, Lifan, 1998. "Information asymmetry, market segmentation and the pricing of cross-listed shares: theory and evidence from Chinese A and B shares," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(3-4), pages 325-356, December.
    14. Jian Yang, 2003. "Market Segmentation and Information Asymmetry in Chinese Stock Markets: A VAR Analysis," The Financial Review, Eastern Finance Association, vol. 38(4), pages 591-609, November.
    15. Diks, Cees & Panchenko, Valentyn, 2006. "A new statistic and practical guidelines for nonparametric Granger causality testing," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1647-1669.
    16. Cheol S. Eun & Sanjiv Sabherwal, 2003. "Cross‐Border Listings and Price Discovery: Evidence from U.S.‐Listed Canadian Stocks," Journal of Finance, American Finance Association, vol. 58(2), pages 549-575, April.
    17. Hiemstra, Craig & Jones, Jonathan D, 1994. "Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation," Journal of Finance, American Finance Association, vol. 49(5), pages 1639-1664, December.
    18. A. I. McLeod & W. K. Li, 1983. "Diagnostic Checking Arma Time Series Models Using Squared‐Residual Autocorrelations," Journal of Time Series Analysis, Wiley Blackwell, vol. 4(4), pages 269-273, July.
    19. Cheol S. Eun & Sanjiv Sabherwal, 2003. "Cross-Border Listings and Price Discovery: Evidence from U.S.-Listed Canadian Stocks," Journal of Finance, American Finance Association, vol. 58(2), pages 549-576, April.
    20. Martin Laurence & Francis Cai & Sun Qian, 1997. "Weak-form Efficiency and Causality Tests in Chinese Stock Markets," Multinational Finance Journal, Multinational Finance Journal, vol. 1(4), pages 291-307, December.
    21. Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001. "The portfolio flows of international investors," Journal of Financial Economics, Elsevier, vol. 59(2), pages 151-193, February.
    22. Gary Gang Tian & Guang Hua Wan, 2004. "Interaction among China-related stocks: evidence from a causality test with a new procedure," Applied Financial Economics, Taylor & Francis Journals, vol. 14(1), pages 67-72.
    23. Ma, Yue & Kanas, Angelos, 2000. "Testing for a nonlinear relationship among fundamentals and exchange rates in the ERM," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 135-152, February.
    24. Okunev, John & Wilson, Patrick & Zurbruegg, Ralf, 2000. "The Causal Relationship between Real Estate and Stock Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 21(3), pages 251-261, November.
    25. Pan, Ming-Shiun & Chan, Kam c & Wright, David J, 2001. "Divergent Expectations and the Asian Financial Crisis of 1997," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(2), pages 219-238, Summer.
    26. Kutan, Ali M. & Zhou, Haigang, 2006. "Determinants of returns and volatility of Chinese ADRs at NYSE," Journal of Multinational Financial Management, Elsevier, vol. 16(1), pages 1-15, February.
    27. Weigand, Robert A., 1996. "Trading volume and firm size: A test of the information spillover hypothesis," Review of Financial Economics, Elsevier, vol. 5(1), pages 47-58.
    28. Stulz, Rene M & Wasserfallen, Walter, 1995. "Foreign Equity Investment Restrictions, Capital Flight, and Shareholder Wealth Maximization: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 8(4), pages 1019-1057.
    29. Sjoo, Boo & Zhang, Jianhua, 2000. "Market segmentation and information diffusion in China's stock markets," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 421-438, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhuo Qiao & Keith Lam, 2011. "Granger causal relations among Greater China stock markets: a nonlinear perspective," Applied Financial Economics, Taylor & Francis Journals, vol. 21(19), pages 1437-1450.
    2. GUORUI BIAN & MICHAEL McALEER & WING-KEUNG WONG, 2013. "Robust Estimation And Forecasting Of The Capital Asset Pricing Model," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-18.
    3. Charles, Amélie & Darné, Olivier, 2009. "The random walk hypothesis for Chinese stock markets: Evidence from variance ratio tests," Economic Systems, Elsevier, vol. 33(2), pages 117-126, June.
    4. Weber, Enzo & Zhang, Yanqun, 2012. "Common influences, spillover and integration in Chinese stock markets," Journal of Empirical Finance, Elsevier, vol. 19(3), pages 382-394.
    5. Chow, Sheung Chi & Vieito, João Paulo & Wong, Wing Keung, 2019. "Do both demand-following and supply-leading theories hold true in developing countries?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 513(C), pages 536-554.
    6. Chia-Lin Chang & Michael McAleer & Wing-Keung Wong, 2018. "Big Data, Computational Science, Economics, Finance, Marketing, Management, and Psychology: Connections," JRFM, MDPI, vol. 11(1), pages 1-29, March.
    7. Bai, Zhidong & Wong, Wing-Keung & Zhang, Bingzhi, 2010. "Multivariate linear and nonlinear causality tests," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(1), pages 5-17.
    8. Chia-Lin Chang & Michael McAleer & Wing-Keung Wong, 2018. "Decision Sciences, Economics, Finance, Business, Computing, And Big Data: Connections," Advances in Decision Sciences, Asia University, Taiwan, vol. 22(1), pages 36-94, December.
    9. Chang, C-L. & McAleer, M.J. & Wong, W.-K., 2018. "Decision Sciences, Economics, Finance, Business, Computing, and Big Data: Connections," Econometric Institute Research Papers 18-024/III, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    10. Xiaojie Xu, 2018. "Cointegration and price discovery in US corn cash and futures markets," Empirical Economics, Springer, vol. 55(4), pages 1889-1923, December.
    11. Bai, Zhidong & Li, Heng & Wong, Wing-Keung & Zhang, Bingzhi, 2011. "Multivariate causality tests with simulation and application," Statistics & Probability Letters, Elsevier, vol. 81(8), pages 1063-1071, August.
    12. Dai, Zhifeng & Zhu, Huan & Dong, Xiaodi, 2020. "Forecasting Chinese industry return volatilities with RMB/USD exchange rate," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 539(C).
    13. Kim-Hung Pho & Thi Diem-Chinh Ho & Tuan-Kiet Tran & Wing-Keung Wong, 2019. "Moment Generating Function, Expectation And Variance Of Ubiquitous Distributions With Applications In Decision Sciences: A Review," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(2), pages 65-150, June.
    14. Chu, Amanda M.Y. & Lv, Zhihui & Wagner, Niklas F. & Wong, Wing-Keung, 2020. "Linear and nonlinear growth determinants: The case of Mongolia and its connection to China," Emerging Markets Review, Elsevier, vol. 43(C).
    15. Chia-Lin Chang & Michael McAleer & Wing-Keung Wong, 2018. "Big Data, Computational Science, Economics, Finance, Marketing, Management, and Psychology: Connections," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 11(1), pages 1-29, March.
    16. Lanlan Liu & Dan Luo & Liang Han, 2019. "Default risk, state ownership and the cross-section of stock returns: evidence from China," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 933-966, November.
    17. Liu, Li & Wan, Jieqiu, 2012. "The relationships between Shanghai stock market and CNY/USD exchange rate: New evidence based on cross-correlation analysis, structural cointegration and nonlinear causality test," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(23), pages 6051-6059.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bae, Sung C. & Li, Mingsheng & Shi, Jing, 2009. "Does the law of one price hold better under a flexible exchange rate system?," Journal of Multinational Financial Management, Elsevier, vol. 19(4), pages 306-322, October.
    2. Zhuo Qiao & Keith Lam, 2011. "Granger causal relations among Greater China stock markets: a nonlinear perspective," Applied Financial Economics, Taylor & Francis Journals, vol. 21(19), pages 1437-1450.
    3. Doukas, John A. & Wang, Liu, 2013. "Information asymmetry, price discovery, and the Chinese B-share discount puzzle," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1116-1135.
    4. Jian Yang, 2003. "Market Segmentation and Information Asymmetry in Chinese Stock Markets: A VAR Analysis," The Financial Review, Eastern Finance Association, vol. 38(4), pages 591-609, November.
    5. Daxue Wang, 2006. "Cross-Autocorrelation of Dual-Listed Stock Portfolio Returns: Evidence from the Chinese Stock Market," Computing in Economics and Finance 2006 182, Society for Computational Economics.
    6. Eichler, Stefan, 2011. "Exchange rate expectations and the pricing of Chinese cross-listed stocks," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 443-455, February.
    7. Zhu, Jie, 2009. "Testing for expected return and market price of risk in Chinese A and B share markets: A geometric Brownian motion and multivariate GARCH model approach," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(8), pages 2633-2653.
    8. Darrat, Ali F. & Gilley, Otis & Wu, Yanhui & Zhong, Maosen, 2010. "On the Chinese B-share price discount puzzle: Some new evidence," Journal of Business Research, Elsevier, vol. 63(8), pages 895-902, August.
    9. Fifield, Suzanne G.M. & Jetty, Juliana, 2008. "Further evidence on the efficiency of the Chinese stock markets: A note," Research in International Business and Finance, Elsevier, vol. 22(3), pages 351-361, September.
    10. Ai-Chi Hsu & Show-Yen Lai & Lien-Hui Chao, 2014. "Information Transmission Effects between A and H Dual Listing Shares," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 8(5), pages 27-40.
    11. Jiao, Feng & Liu, Qingfu & Tse, Yiuman & Wang, Zhiqin, 2022. "Price disparity between Chinese A- and H-shares: Dividends, currency values, and the interest rate differential," Global Finance Journal, Elsevier, vol. 53(C).
    12. Francis, Bill B. & Mougoué, Mbodja & Panchenko, Valentyn, 2010. "Is there a symmetric nonlinear causal relationship between large and small firms?," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 23-38, January.
    13. John Fernald & John H. Rogers, 2002. "Puzzles In The Chinese Stock Market," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 416-432, August.
    14. Yang, Ting & Lau, Sie Ting, 2005. "U.S. cross-listing and China's B-share discount," Journal of Multinational Financial Management, Elsevier, vol. 15(4-5), pages 334-353, October.
    15. Chen, Jing & Buckland, Roger & Williams, Julian, 2011. "Regulatory changes, market integration and spillover effects in the Chinese A, B and Hong Kong equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 19(4), pages 351-373, September.
    16. Tsai, Pei-Jung, 2009. "International equity flows and country funds," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 862-894, December.
    17. Deng, Lu & Liao, Mingqing & Luo, Rui & Sun, Jianfei & Xu, Chen, 2021. "Does corporate social responsibility reduce share price premium? Evidence from China's A- and H-shares," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    18. Chi Dong & Hooi Hooi Lean & Zamri Ahmad, 2017. "Intra-industry information diffusion in China's stock market," Economics Bulletin, AccessEcon, vol. 37(1), pages 1-11.
    19. Tong, Wilson H.S. & Yu, Wayne W., 2012. "A corporate governance explanation of the A-B share discount in China," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 125-147.
    20. Hung, Jui-Cheng, 2009. "Deregulation and liberalization of the Chinese stock market and the improvement of market efficiency," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 843-857, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:mulfin:v:18:y:2008:i:3:p:276-289. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/mulfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.