Chinese Stock Market

Topics: Stock market, Stock exchange, Shanghai Stock Exchange Pages: 19 (5356 words) Published: April 14, 2013
African Journal of Business Management Vol. 5(12), pp. 4657-4665, 18 June, 2011 Available online at http://www.academicjournals.org/AJBM ISSN 1993-8233 ©2011 Academic Journals

Full Length Research Paper

Are Chinese stock markets mature and open? Evidence from mature stock markets Yu Zhao*1, Yu Zhang1 and Chunjie Qi2
1

College of Economics and Management, East China Institute of Technology, Fuzhou, 344000, Jiangxi, P. R. C. 2 College of Economics and Management, Huazhong Agricultural University, Wuhan, 430070, Hubei, P. R. C. Accepted 11 February, 2011

The maturity and openness of Chinese stock markets can be measured by price impact of other mature stock markets on them. The article uses wavelet analysis to eliminate noise in stock price signal and analyzes to what degree Shanghai stock market is affected by volatility of stock markets of Hong Kong, Tokyo, New York and London by using Structural Vector Auto Regression (SVAR), impulse response analysis and variance decomposition. The results show that Chinese stock markets are becoming more and more mature and open, which are integrated into the global stock market gradually, which can be known from the response of Shanghai Composite Index, shocked by the other indices. Among all the mature stock indices in the paper, influence of Dow Jones Industrial Average on Shanghai Composite Index is most significant, followed by FTSE100 Index. Key words: Chinese stock markets, wavelet analysis, Structural Vector Auto Regression (SVAR), impulse response, variance decomposition. INTRODUCTION The development of Chinese capital market is relatively backward and closed. The interaction of stock markets at home and abroad was not obvious in the beginning of the 1990s (Yu, Chen and Huang, 2001; Wu and Xu, 2004). As the ability to maintain balance of payments is improving and domestic enterprises are accelerating their oversea listing financing, at present, western academic circles start to pay attention to the openness of Chinese stock market and its connection with foreign stock market (Cheng and Glascock, 2005; Girard and Rita, 2007; Bora, Pinar, Baris and Bülent, 2009). A lot of researches show that there is no significant dependency relation between Chinese and international stock market in the earlier days of Chinese stock market (Bailey, 1994; Johnson, 1994; Huang et al., 2000). Through observing stock markets of eight East Asian countries during 1995 to 1998, Tan (1998) confirmed the “contagion effect” of Southeast Asian financial crisis in Asian market by using Vector Error Correction Model. Chang (2001) found that financial crisis had a noticeable impact in American stock market by comparing with stock markets of Taiwan, Hong Kong, Japan and The USA, between 1997 and 1998. The paper is aimed at understanding the openness of Chinese stock market. The article uses wavelet analysis to eliminate noise in stock price signal firstly, and then applies SVAR (Structural Vector Auto Regression), impulse response function and variance decomposition to simulate impacts of Shanghai stock market affected by volatility of other stock markets at home and abroad. The dynamic inter-linkages between Chinese stock markets and other markets of developed countries reflect the openness of Chinese stock markets. The paper is organized into 6 sections. Section 2 provides a brief overview of empirical literature on interlinkages and interaction of stock markets. Section 3 describes methodology adopted in the study. Section 4 gives data used in the paper. Section 5 discusses the empirical results and section 6 concludes the results. LITERATURE REVIEW Roca (1999) investigated the interlinkages among equity markets of Japan, Korea, U.S, U.K., Singapore, Taiwan, Australia and Hong Kong by employing Granger causality test and Johansen co integration technique. His results revealed that no co integration exists between Australia and other markets but Australian market was found

*Corresponding...

References: Bailey W (1994). Risk and Return on China New Stock Market: Some Preliminary Evidence. Pacific-Basin Financ. J., 2(1): 243-260. Bora A, Pinar EM, Baris SK, Bülent E (2009). Behaviour of Emerging Stock Markets in the Global Financial Meltdown: Evidence from Brica. Afr. J. Bus. Manage., 3(7): 396-404. Chang TY, Nieh C (2001). International Transmission of Stock Price Movements among Taiwan and Its Trading Partners: Hong Kong,
Zhao et al.
4665
Japan and the United States. Review of Pacific Basin Financial Markets Policies, 4(4): 379-401. Cheng H, Glascock JL (2005). Dynamic Linkages be-tween the Greater Japan and the United States. Rev. Pacific Basin Finan. Markets Policies, 4(4): 379-401. China Economic Area Stock Mar-kets-Mainland China, Hong Kong, and Taiwan. Rev. Quant. Finan. Account. 24:343-357. Girard E, Rita B (2007). Trading Volume and Market Volatility: Developed Versus Emerging Stock Mar-kets. Finan. Rev., 42(3):429459. Edwards S, Biscarri JG, Gracia FP (2003). Stock Market Cycles, Financial Liberalization and Volatility. J. Int. Money Financ., 22(7): 925 -955. Hasan A, Saleem HMN, Abdullah MS (2008). Long-Run Relationships between an Emerging Equity Market and Equity Markets of the Developed World an Empirical Analysis of Karachi Stock Exchange. Int. Res. J. Financ. Econ., 16: 52-62. Hatemi JA, Roca ED, Buncic D (2006). Bootstrap Causality Tests of the Relationship between the Equity Markets of the U.S. and other Developed Countries: Pre- and Post-September 11. J. Appl. Bus. Res., 22(3): 65-74. Huang BN, Yang CW, Hu JW (2000). Causality and Co-integration of Stock Markets among the United States, Japan, and the South China Growth Triangle. Int. Rev. Finan. Anal., 9(3): 281-297. Johnson R, Sun M, Soenen L (1994). The Shenzhen Stock Exchange: an Assessment of the Risk and Return. Asian Bus., 10(4): 1-16. Lin CT, Lee YH (2010). The Jump-diffusion process for the VIX and the S &P 500 Index. Afr. J. Bus. Manage., 4(9): 1761-1768. N’dri KL (2007). Stock Market Returns and Volatility in the BRVM. Afr. J. Bus. Manage., 1(5):107-112.
Roca ED (1999). Short-term and Long- term Price Linkages between the Equity Markets of Australia and Its Major Trading Partners. Appl. Finan. Econ., 9(5): 501-511. Tan JA (1998). Contagion Effects during the Asian Financial Crisis: Some Evidence from Stock Price Data. Pacific Basin Working Papers Series, No.98: 98-106. Wang KM, Thi NH (2006). Does Contagion Effect Exist Between Stock Markets of Thailand and Chinese Economic Area (CEA) during the “Asian Flu?” Asian J. Manage. Humanity Sci., 1(1):16-36. Wang SN, Pan YH (2004). Study on interlinkage between US and China stock markets. J. Zhejiang University (Eng. Sci.,). 38(11): 1431-1435. Wang YG, Gan DS (2008). An Economic and Empirical Analysis of Hong Kong Equity Market’s Co-movements with The Global Markets. Asian-Pacific Econ., (25)4:106-110. Wang YC, Ho WR (2010). The Relationship of Price Volatility between TSE and TAIFEX Stock Indices Futures with Different Maturities. Afr. J. Bus. Manage., 4(17): 3785-3792. Worthington AC, Katsuura M, Higgs H (2003). Price Linkages in Asian Equity Markets: Evidence Bordering the Asian Economic, Currency and Financial Crises. Asia -Pacific Finan. Mark. 10 (1): 29 -44. Wu ZX, Xu N (2004). VAR Research on Interaction of Domestic Stock Market with International Stock Market. J. North China Univ. Tech. 16(4):1-4. Yu SD, Chen SD, Huang LH (2001). The Interactions among the Major Stock Indexes. Statistical Res., 8:42-46.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Indian stock market Essay
  • Stock Market and Economic Growth: an Empirical Analysis for Germany Essay
  • Measuring Stock Market Risk Essay
  • An Empirical Analysis of Stock and Bond Market Liquidity Essay
  • Stock Case Analysis Essay
  • Foreign Exchange Rate Sensitivity and Stock Price Essay
  • Market Neutral Strategies Essay
  • Cmcapital Markets View Essay

Become a StudyMode Member

Sign Up - It's Free