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Stock Market Linkages Before and After the Asian Financial Crisis: Evidence from Three Greater China Economic Area Stock Markets and the US

Listed author(s):
  • Hwahsin Cheng


    (Fannie Mae, 3900 Wisconsin Avenue N.W., Washington DC 20016, USA)

  • John L. Glascock


    (Department of Land Economy, University of Cambridge, 19 Silver Street, Cambridge, CB3 9EP, United Kingdom)

We investigate the stock market linkages between the United States and three Greater China Economic Area stock markets — China, Hong Kong, and Taiwan, before and after the 1997 Asian financial crisis. Daily stock market indices from January 1995 to December 2000 are used for the analysis. Results from Granger causality test indicate increased feedback relationships between the markets in the post-crisis period. We also find, from the principal component analysis, fewer common factors affecting stock returns after the crisis, suggesting more harmonious market co-movements after the financial crisis. Additionally, results from a variance decomposition analysis suggest that stock markets are more responsive to foreign shocks after the crisis. This further strengthens the evidence that stock markets become more interrelated after the 1997 Asian financial crisis.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

Volume (Year): 09 (2006)
Issue (Month): 02 ()
Pages: 297-315

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Handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:02:p:297-315
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