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The impact of China's stock market reforms on its international stock market linkages

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  • Li, Hong

Abstract

This paper investigates how China's stock market reforms have affected the stock market linkages between China and Korea, Japan and the US respectively. We firstly use a 4×4 asymmetric GARCH-BEKK model and a series of likelihood ratio tests to uncover China's regional and global linkages between 1992 and 2010 and during three sub-periods representing the stages of the Chinese reforms. The results show that Chinese stock market is linked to these overseas markets and the reforms permit spillovers to these markets from China. The subsequent regression analyses of the time-varying conditional correlations, in the presence of growing economic integration, exchange rate risk and financial turbulence, further indicate that the interdependences between China and the regional markets increase due to the implementation of liberalisation policies. However, the correlation between China and the global market remains weak even though this correlation responds positively to the institutional reforms on China's stock market additionally.

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  • 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.
    • Handle: RePEc:eee:quaeco:v:52:y:2012:i:4:p:358-368
    DOI: 10.1016/j.qref.2012.10.003
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    5. Kim, Jun Sik & Ryu, Doojin, 2014. "Intraday price dynamics in spot and derivatives markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 247-253.
    6. Yanan Li & David E. Giles, 2015. "Modelling Volatility Spillover Effects Between Developed Stock Markets and Asian Emerging Stock Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 155-177, March.
    7. Ahmed, Abdullahi D. & Huo, Rui, 2019. "Impacts of China's crash on Asia-Pacific financial integration: Volatility interdependence, information transmission and market co-movement," Economic Modelling, Elsevier, vol. 79(C), pages 28-46.
    8. Bai, Ye & Chow, Darien Yan Pang, 2017. "Shanghai-Hong Kong Stock Connect: An analysis of Chinese partial stock market liberalization impact on the local and foreign markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 182-203.
    9. 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.
    10. Sun, Guanglin & Yao, Xiaoyang & Li, Jianfeng & Lu, Tongyu, 2023. "Risk linkages between China's stock market and APEC stock markets under China's market liberalization," Finance Research Letters, Elsevier, vol. 52(C).
    11. Glick, Reuven & Hutchison, Michael, 2013. "China's financial linkages with Asia and the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 186-206.
    12. 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.
    13. Kundu, Srikanta & Sarkar, Nityananda, 2016. "Return and volatility interdependences in up and down markets across developed and emerging countries," Research in International Business and Finance, Elsevier, vol. 36(C), pages 297-311.
    14. 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.
    15. Ahmed, Abdullahi D. & Huo, Rui, 2021. "Volatility transmissions across international oil market, commodity futures and stock markets: Empirical evidence from China," Energy Economics, Elsevier, vol. 93(C).
    16. Mayuri Mukherjee & Saumitra N. Bhaduri, 2015. "Spillover Effects of Quantitative Easing," Review of Market Integration, India Development Foundation, vol. 7(2), pages 117-132, August.
    17. Kiviet Jan F., 2017. "Discriminating between (in)valid External Instruments and (in)valid Exclusion Restrictions," Journal of Econometric Methods, De Gruyter, vol. 6(1), pages 1-9, January.
    18. Horváth, Lajos & Li, Bo & Li, Hemei & Liu, Zhenya, 2020. "Time-varying beta in functional factor models: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    19. Yang, Chunxia & Chen, Yanhua & Niu, Lei & Li, Qian, 2014. "Cointegration analysis and influence rank—A network approach to global stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 400(C), pages 168-185.
    20. Jan F. Kiviet & Zhenxi Chen, 2016. "A critical appraisal of studies analyzing co-movement of international stock markets with a focus on East-Asian indices," Economic Growth Centre Working Paper Series 1606, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    21. Yu, Honghai & Fang, Libing & Sun, Boyang & Du, Donglei, 2018. "Risk contribution of the Chinese stock market to developed markets in the post-crisis period," Emerging Markets Review, Elsevier, vol. 34(C), pages 87-97.
    22. Do, A. & Powell, R. & Yong, J. & Singh, A., 2020. "Time-varying asymmetric volatility spillover between global markets and China’s A, B and H-shares using EGARCH and DCC-EGARCH models," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Multivariate GARCH model; Time-varying stock market linkages; China's stock market reforms; 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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