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A Time-Series Analysis of the Shanghai and New York Stock Price Indices

  • Gregory C. Chow

    (Princeton University)

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    A time series analysis of the Shanghai and New York Stock Exchange composite price indices is provided to compare the weekly rates of return and volatilities of these two markets and to study their co-movement in 1992-2002. The rate of return and volatility of the Shanghai market were higher. The rates of returns in the two markets were approximately serially uncorrelated and mutually uncorrelated. Volatility, as measured by the absolute change in the rate of return, has positive serially correlations in both markets as expected, but the autoregressions are temporarily unstable. Most surprisingly the volatility measures of the two markets are significantly negatively correlated. Volatility in each market was found to Granger cause volatility in the other market negatively. This spurious correlation is explained by the negative correlations of macroeconomic fundamentals in the United States and China as indicated by a negative correlation between the rates of change in their GDP while their capital markets are not integrated. The analysis has implications for the use of autoregressions and Granger causality tests, and the interpretation of spurious correlation.

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    File URL: http://128.118.178.162/eps/get/papers/0306/0306008.pdf
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    Paper provided by EconWPA in its series General Economics and Teaching with number 0306008.

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    Length: 21 pages
    Date of creation: 10 Jun 2003
    Date of revision:
    Handle: RePEc:wpa:wuwpgt:0306008
    Note: 21 pages
    Contact details of provider: Web page: http://128.118.178.162

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    1. Yao, Chengxi, 1998. "Stock Market and Futures Market in the People's Republic of China," OUP Catalogue, Oxford University Press, number 9780195907254, March.
    2. Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
    3. Chow, Gregory C. & Fan, Zhao-zhi & Hu, Jin-yan, 1999. "Shanghai Stock Prices as Determined by the Present-Value Model," Journal of Comparative Economics, Elsevier, vol. 27(3), pages 553-561, September.
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