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The dynamic dependence between stock markets in the greater China economic area: a study based on extreme values and copulas

Saiful Izzuan Hussain () and Steven Li ()
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Saiful Izzuan Hussain: Universiti Kebangsaan Malaysia
Steven Li: RMIT University

Financial Markets and Portfolio Management, 2018, vol. 32, issue 2, 207-233

Abstract: Abstract This study employs the dynamic copula method and extreme value theory to investigate the dependence structure between pairs of greater China economic area (GCEA) stock markets consisting of Shanghai (SHSE), Shenzhen (SZSE), Hong Kong (HKSE), and Taiwan (TWSE) stock exchanges from July 2000 to June 2017. We also examine the impact of financial crisis on the dependence structure by considering the global financial crisis and the Chinese stock market crash (2015–2016). Many studies have shown that the benefits of portfolio diversification across the stock markets in the same region could be diminishing. However, it is interesting to see that the diversification benefits appear to be viable for investing in some GCEA pairs of stock markets (SHSE–TWSE and SZSE–HKSE).

Keywords: Copula; Extreme value theory; Dependence structure; Chinese stock markets; Financial crisis (search for similar items in EconPapers)
JEL-codes: G15 G32 (search for similar items in EconPapers)
Date: 2018
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