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The dynamic dependence between the Chinese market and other international stock markets: A time-varying copula approach

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  • Wang, Kehluh
  • Chen, Yi-Hsuan
  • Huang, Szu-Wei

Abstract

The purpose of this paper is to study the dependence structures between the Chinese market and other major world markets, a reflection of China's increasing integration into the global economy. We used time-varying copula models to show that conditional copulas outperform both unconditional copulas and conventional GARCH models. We consistently found the Chinese market to have the highest levels of dependence, as well as the greatest variability in dependence, with markets in Japan and the Pacific. Our results provide investors interested in the Chinese market with more timely suggestions for portfolio diversification, risk management, and international asset allocation than those derived from static models.

Suggested Citation

  • Wang, Kehluh & Chen, Yi-Hsuan & Huang, Szu-Wei, 2011. "The dynamic dependence between the Chinese market and other international stock markets: A time-varying copula approach," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 654-664, October.
  • Handle: RePEc:eee:reveco:v:20:y:2011:i:4:p:654-664
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    References listed on IDEAS

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    Cited by:

    1. Reboredo, Juan C. & Tiwari, Aviral Kumar & Albulescu, Claudiu Tiberiu, 2015. "An analysis of dependence between Central and Eastern European stock markets," Economic Systems, Elsevier, vol. 39(3), pages 474-490.
    2. Abu Bakar, Norhidayah & Masih, Abul Mansur M., 2014. "The Dynamic Linkages between Islamic Index and the Major Stock Markets: New Evidence from Wavelet time-scale decomposition Analysis," MPRA Paper 56977, University Library of Munich, Germany.
    3. repec:eee:ecmode:v:64:y:2017:i:c:p:384-398 is not listed on IDEAS
    4. Koulakiotis, Athanasios & Kartalis, Nikos & Lyroudi, Katerina & Papasyriopoulos, Nicholas, 2012. "Asymmetric and threshold effects on comovements among Germanic cross-listed equities," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 327-342.
    5. Zhu, Hui-Ming & Li, Rong & Li, Sufang, 2014. "Modelling dynamic dependence between crude oil prices and Asia-Pacific stock market returns," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 208-223.
    6. repec:kap:rqfnac:v:50:y:2018:i:4:d:10.1007_s11156-017-0658-5 is not listed on IDEAS
    7. 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.
    8. 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.
    9. repec:eee:phsmap:v:480:y:2017:i:c:p:10-21 is not listed on IDEAS
    10. repec:bla:ausecp:v:56:y:2017:i:2:p:134-162 is not listed on IDEAS
    11. Huang, Hung-Hsi & Lin, Shin-Hung & Wang, Ching-Ping & Chiu, Chia-Yung, 2014. "Adjusting MV-efficient portfolio frontier bias for skewed and non-mesokurtic returns," The North American Journal of Economics and Finance, Elsevier, vol. 29(C), pages 59-83.
    12. Paolella, Marc S. & Polak, Paweł, 2015. "ALRIGHT: Asymmetric LaRge-scale (I)GARCH with Hetero-Tails," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 282-297.
    13. Zhang, Bing & Li, Xiao-Ming, 2014. "Has there been any change in the comovement between the Chinese and US stock markets?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 525-536.
    14. repec:ipg:wpaper:2014-094 is not listed on IDEAS
    15. Li, Johnny Siu-Hang & Ng, Andrew C.Y. & Chan, Wai-Sum, 2015. "Managing financial risk in Chinese stock markets: Option pricing and modeling under a multivariate threshold autoregression," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 217-230.
    16. Heni Boubaker & Nadia Sghaier, 2014. "On the dynamic dependence between US and other developed stock markets: An extreme-value time-varying copula approach," Working Papers 2014-281, Department of Research, Ipag Business School.
    17. Li, Xiao-Ming & Peng, Lu, 2017. "US economic policy uncertainty and co-movements between Chinese and US stock markets," Economic Modelling, Elsevier, vol. 61(C), pages 27-39.
    18. El Alaoui, Marwane & Benbachir, Saâd, 2012. "Spillover Effect in the MENA Area: Case of Four Financial Markets," MPRA Paper 48682, University Library of Munich, Germany.
    19. Heni Boubaker & Nadia Sghaier, 2014. "On the dynamic dependence between US and other developed stock markets: An extreme," Working Papers 2014-94, Department of Research, Ipag Business School.

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