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What Is the Relationship Between the Chinese and US Stock Markets? Bivariate Analysis

In: Quantitative Investing

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  • Lingjie Ma

    (University of Illinois at Chicago)

Abstract

In this chapter, we explore the relationship between two random variables using the example of the Chinese and US stock markets. How does the performance of the S&P 500 impact the Chinese stock market and vice versa? Are the impacts the same when the US market is bullish and bearish? How long do the impacts last? Is there a scientific way to measure the impacts and formulate an investment strategy? We answer all of these questions in this chapter. First, we introduce the Chinese stock market with a focus on its origins, development, and special features. We then introduce bivariate analysis, the concepts of correlation and rank correlation, and how to apply correlation to measure the relationship between the S&P 500 and CSI 300. We present industry approaches, such as spillover effects and information decay, and demonstrate how to explore the asymmetry of the relationship between the two stock markets. On the programming side, we show how to write a function in R and introduce various methods for loops.

Suggested Citation

  • Lingjie Ma, 2020. "What Is the Relationship Between the Chinese and US Stock Markets? Bivariate Analysis," Springer Books, in: Quantitative Investing, chapter 0, pages 69-109, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-47202-3_3
    DOI: 10.1007/978-3-030-47202-3_3
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