Comovements between Chinese and global stock markets: evidence from aggregate and sectoral data

Thomas C. Chiang (), Lanjun Lao () and Qingfeng Xue ()
Additional contact information
Thomas C. Chiang: Drexel University
Lanjun Lao: Fudan University
Qingfeng Xue: CES Finance Holding Co. Ltd.

Review of Quantitative Finance and Accounting, 2016, vol. 47, issue 4, No 6, 1003-1042

Abstract: Abstract This paper investigates the dynamic correlations between Chinese stock returns and global markets at both the market and sectoral levels. Statistics suggest that stock-return correlations across markets are time-varying and display structural breaks. An upward shift in stock return correlations is associated with China’s adoption of a higher degree of financial liberalization. The evidence indicates that the stock returns of the financial sector exhibit the highest correlation across countries among 10 sectors. Low correlations are present in the Health Care, Telecommunications, and Utilities sectors. The correlations are closely tied to geographic location: the correlation with Hong Kong is the highest, followed by South Korea, Japan, Europe and the US. The time-series stock-return correlations are positively correlated with the conditional variance and variance premiums.

Keywords: Stock market linkages; Smooth transition; Variance premium; Conditional variance; DCC model; Comovements (search for similar items in EconPapers)
JEL-codes: C22 G14 G15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s11156-015-0529-x

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