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Interaction among China-related stocks: evidence from a causality test with a new procedure

  • Gary Gang Tian
  • Guang Hua Wan

The purpose of this study is to investigate a causal relationship among five different indices of shares issued by Chinese firms, A-, B- and H-shares listed in China and Hong Kong. This article re-examines the interactions among these China-related stocks using daily time series data by constructing a vector autoregresion (VAR) model. A new Granger no-causality testing procedure developed by Toda and Yamamoto was applied to test the causality link among these five stock indices. The results suggest that the 'closed' B-share markets in Shanghai and Shenzhen exhibit causality relations with each other during the entire period between 1993 and 1999 but this pattern does not exist within A-share markets. Furthermore, evidence is also found of Granger causality running from Hong Kong H-shares to B-shares in Shanghai and Shenzhen, and from Shanghai B-shares to all the rest Chinese markets for the post-1996 period.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0960310042000164239
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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 1 ()
Pages: 67-72

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Handle: RePEc:taf:apfiec:v:14:y:2004:i:1:p:67-72
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  1. John Fernald & John H. Rogers, 2000. "Puzzles in the Chinese stock market," Working Paper Series WP-00-13, Federal Reserve Bank of Chicago.
  2. Zapata, Hector O. & Rambaldi, Alicia N., 1996. "Monte Carlo Evidence On Cointegration And Causation," Staff Papers 31690, Louisiana State University, Department of Agricultural Economics and Agribusiness.
  3. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
  4. Chui, Andy C W & Kwok, Chuck C Y, 1998. "Cross-Autocorrelation between A Shares and B Shares in the Chinese Stock Market," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(3), pages 333-53, Fall.
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