Modeling China's Stock Markets and International Linkages
摘要
In this paper we analyze the China stock markets and examine their price and volatility linkages with those of Hong Kong, Taiwan and United States. In particular, we analyze the direction of information flow among A-share and B-share stocks of Shanghai and Shenzhen Stock Exchanges as well as Hong Kong H-share and Red-Chip markets. We employ two methods. The first approach employs direct graph theory to determine the contemporaneous causal order of the residual vectors obtained from restricted VAR model and then use the Bernanke-Sims decomposition to compute the impulse response. The second approach involves estimating the multivariate GARCH models of several market returns to investigate the directions of spillover in mean level as well as in volatility level. We analyze close-to-open, open-to-close, and close-to-close returns to differentiate foreign and own market effects. We also carefully model the day-of-the-week effect and the impact of the event of opening B-share market to domestic investors on February 28, 2001 to avoid misspecification of the model. Using the data from January 5, 2000 to May 30, 2003, we conclude that Chinese stock markets have a weak linkage with Hong Kong, Taiwan and US markets. As for the four domestic markets, spillover in mean returns goes unidirectionally from A-share market to B-share market but spillover in volatility is bidirectional. Further, Shanghai stock market seems to play a dominating role over Shenzhen stock market.