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The paradox of China's international stock market co-movement: Evidence from volatility spillover effects between China and G5 stock markets

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  • Yusaku Nishimura
  • Ming Men

Abstract

Purpose - The purpose of this paper is to examine the daily and overnight volatility spillover effects in common stock prices between China and G5 countries and explain their implications on the basis of empirical results. Design/methodology/approach - The analysis utilizes the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model, the cross-correlation function approach, and realized volatility for daily and intraday stock price data that cover the period from January 5, 2004 to December 31, 2007. Findings - Principally, the paper concludes the following: strong evidence of short-run one-way volatility spillover effects from China to the US, UK, German and French stock markets is observed and the test results indicate that Chinese investors were not rational and China's stock market entered a speculative bubble period after the second half of 2006. Originality/value - Contrary to widespread belief, the empirical results suggest that a small (China) stock market has significant influence on a large (G5) stock market but not vice versa. This paradox is interpreted as a particular phenomenon existing together with the rapid economic development and severe capital regulation in China.

Suggested Citation

  • Yusaku Nishimura & Ming Men, 2010. "The paradox of China's international stock market co-movement: Evidence from volatility spillover effects between China and G5 stock markets," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 3(3), pages 235-253, October.
  • Handle: RePEc:eme:ceftpp:v:3:y:2010:i:3:p:235-253
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    References listed on IDEAS

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    Cited by:

    1. Nishimura, Yusaku & Tsutsui, Yoshiro & Hirayama, Kenjiro, 2015. "Intraday return and volatility spillover mechanism from Chinese to Japanese stock market," Journal of the Japanese and International Economies, Elsevier, vol. 35(C), pages 23-42.
    2. Yusaku Nishimura & Yoshiro Tsutsui & Kenjiro Hirayama, 2016. "The Chinese Stock Market Does not React to the Japanese Market: Using Intraday Data to Analyse Return and Volatility Spillover Effects," The Japanese Economic Review, Japanese Economic Association, vol. 67(3), pages 280-294, September.
    3. Yusaku Nishimura & Yoshiro Tsutsui & Kenjiro Hirayama, 2012. "Return and Volatility Spillovers between Japanese and Chinese Stock Markets FAn Analysis of Overlapping Trading Hours with High-frequency Data," Discussion Papers in Economics and Business 12-01, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    4. Yusaku Nishimura & Yoshiro Tsutsui & Kenjiro Hirayama, 2017. "Do International Investors Cause Stock Market Comovements? Comparing Responses of Cross-Listed Stocks between Accessible and Inaccessible Markets," Discussion Papers in Economics and Business 17-01, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    5. repec:eee:ecmode:v:69:y:2018:i:c:p:237-248 is not listed on IDEAS

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