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Economic Integration and Structure Change in Stock Market Dependence: Empirical Evidences of CEPA

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  • Chung-Chu Chuang
  • Jeff T.C. Lee

Abstract

This study investigates dependence structure changes between the Hong Kong and Chinese stock markets as a result of the Closer Economic Partnership Arrangement (CEPA). Four copulas, Gaussian, student t, Gumbel, and Clayton are used to search for unknown dependence structure changes. This study presents two main findings. First, the dependence between the Hong Kong and Chinese stock markets increased significantly following the structure change that occurred on February2, 2005, about one year after CEPA took effect. Second, the distribution of dependence structure altered from Gumbel copula before the structure change to t copula after the structure change. CEPA’s effects not only changed the dependence parameters but also changed the dependence structure’s distribution.

Suggested Citation

  • Chung-Chu Chuang & Jeff T.C. Lee, 2014. "Economic Integration and Structure Change in Stock Market Dependence: Empirical Evidences of CEPA," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 4(2), pages 1-3.
    • Handle: RePEc:spt:apfiba:v:4:y:2014:i:2:f:4_2_3
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