Links between the Indian, U.S. and Chinese Stock Markets

Heng Chen, Bento J. Lobo and Wing-Keung Wong ()
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Heng Chen: Department of Economics, National University of Singapore
Bento J. Lobo: University of Tennessee at Chattanooga

Departmental Working Papers from National University of Singapore, Department of Economics

Abstract: This study examines the bilateral relations between three pairs of stock markets, namely India-U.S., India-China and China-U.S. We use a Fractionally Integrated Vector Error Correction Model (FIVECM) to examine the cointegration mechanism between markets. By augmenting the FIVECM with a multivariate GARCH formulation, we study the first and second moment spillover effects simultaneously. Our empirical results show that all three pairs of stock markets are fractionally cointegrated. The U.S. stock market plays a dominant role in the relations with the other two markets, whereas there is an interactive relationship between the Indian and Chinese stock markets. In particular, the Indian stock market dominates the first moment feedback with the Chinese market, while the latter dominates the second moment feedback with the former.

Keywords: Stock market; Cointegration; Fractionally Integrated Vector Error Correction Model; Multivariate GARCH (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-cwa, nep-fmk, nep-sea and nep-tra
Date: 2006-01
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