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Integration of China Stock Markets with International Stock Markets: An application of Smooth Transition Conditional Correlation with Double Transition Functions

Author

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  • M. Fatih Oztek

    (Department of Economics, METU)

  • Nadir Ocal

    (Department of Economics, METU)

Abstract

This paper employs STCC-GARCH and DSTCC-GARCH models to investigate the time varying return co-movements between Chinese stock markets and stock markets of the US, UK, France and Japan. Unlike the earlier literature, we uncover that there are noticeable rising trends in conditional correlations among these markets particularly following the financial reforms in China. Moreover, the empirical results of DSTCC-GARCH specifications with time and various volatility measures indicate that the correlations increase not only over time but also during calm periods for A-shares, though mixed results are obtained for B-shares.

Suggested Citation

  • M. Fatih Oztek & Nadir Ocal, 2012. "Integration of China Stock Markets with International Stock Markets: An application of Smooth Transition Conditional Correlation with Double Transition Functions," ERC Working Papers 1209, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
    • Handle: RePEc:met:wpaper:1209
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    References listed on IDEAS

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    More about this item

    Keywords

    Multivariate GARCH; Smooth Transition Conditional Correlation; Stock Markets Integration and Co-movements;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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