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Empirical analysis of dynamic correlations of stock returns: evidence from Chinese A-share and B-share markets

Author

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  • Thomas Chiang
  • Lin Tan
  • Huimin Li

Abstract

This paper examines the dynamic correlation structure between A-share and B-share stock returns based on three different measures of correlation coefficients. Testing the models by employing daily stock-return data for the period from 1996 through 2003, we reach the following empirical conclusions. First, the correlation coefficients between A-share and B-share stock returns are time varying. Second, the dynamic path of the correlation coefficients indicates that the correlation coefficients are significantly correlated with the trend factor. Third, there is a substantial spillover effect from the Asian crisis to Chinese stock-return dynamic correlations. Fourth, the evidence suggests that the time-varying correlations are significantly associated with excessive trading activity as measured by excessive trading volumes and high-low price differentials. Fifth, the correlation between A-share and B-share markets has increased since the relaxation of the restriction on B-share market investments by domestic investors.

Suggested Citation

  • Thomas Chiang & Lin Tan & Huimin Li, 2007. "Empirical analysis of dynamic correlations of stock returns: evidence from Chinese A-share and B-share markets," Quantitative Finance, Taylor & Francis Journals, vol. 7(6), pages 651-667.
  • Handle: RePEc:taf:quantf:v:7:y:2007:i:6:p:651-667
    DOI: 10.1080/14697680601173147
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    Cited by:

    1. repec:kap:apfinm:v:24:y:2017:i:4:d:10.1007_s10690-017-9232-3 is not listed on IDEAS
    2. Weber, Enzo & Zhang, Yanqun, 2012. "Common influences, spillover and integration in Chinese stock markets," Journal of Empirical Finance, Elsevier, vol. 19(3), pages 382-394.
    3. Chen, Xiaoyu & Chiang, Thomas C., 2016. "Stock returns and economic forces—An empirical investigation of Chinese markets," Global Finance Journal, Elsevier, vol. 30(C), pages 45-65.

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