The contagious effects analysis of Chinese Equity Market to South Asia’s emerging financial markets

Lianqian Yin and Yaqiong Li

Journal of Risk & Control, 2016, vol. 3, issue 1, 1-15

Abstract: To study the contagious effects of financial risks in South Asia’s emerging stock markets, the main stock indexes from China, Thailand, India, Vietnam and Malaysia are chosen during the period from 2006 and 2014. The paper used the dynamic conditional correlation GARCH model to examine the dynamic relevance, and introduced the dummy variable in order to test whether the structure change had occurred after the global financial crisis. The results showed that the degree of relevance of China, Thailand, India and Malaysia stayed in the high level. However, the Vietnam hardly had a dynamic relevance with other emerging markets. This indicated that the Vietnam stock market has apparent market segmentation with other markets, no matter which aspects we considered the dynamic correlation or the financial crisis contagion. At last we build models to analyze the relations between the dynamic conditional correlation of BSE & SSEC and macro-economic. The main reason is to understand which aspects may impact correlation. From the test results, we realize the India GDP and total export-import volume has a positive relation with the correlation, while China’s corresponding indexes has a negative impact on it. In the end, according to the results we got, the investors should pay more attention to the relevance between emerging countries, so that the idiosyncratic risks can be avoided. As for the supervision department, they should reinforce the stock market which has a higher correlation in order to guarantee the stable development of financial markets.

Keywords: Emerging markets; Risk contagion; Equity indexes (search for similar items in EconPapers)
JEL-codes: C30 G15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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