Has there been any change in the comovement between the Chinese and US stock markets?
This paper examines the comovement between the Chinese and US stock markets over the period between January 4, 2000 and January 13, 2012. We show that there is no cointegration relationship between the two markets, even when allowing for structural change. Their conditional correlation fluctuates around an upward trend, which has shifted upward since the recent financial crisis, and the short-run fluctuations are driven by volatility shocks from the two markets. We also find a strong impact of the US market on the Chinese market, especially when the latter undergoes extreme movements. These findings should have important policy implications for Chinese regulators.
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