Hong Kong's Financial Market Interactions with the US and Mainland China in Crisis and Tranquil Times

Dong He, Zhiwei Zhang and Honglin Wang ()
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Zhiwei Zhang: Research Department, Hong Kong Monetary Authority

No 910, Working Papers from Hong Kong Monetary Authority

Abstract: This paper studies how financial markets in the US and Mainland China affected equity, money and foreign exchange markets in Hong Kong on daily basis during the current financial crisis, and how these financial linkages have changed compared with the experience in 2001. In the equity markets, the influence of the Mainland on Hong Kong has increased substantially in the current financial crisis, but it is still less important than that of the US. In the money market, correlation between HIBOR and LIBOR has picked up from the low levels observed during the tranquil period before the crisis, to almost the same level of correlation as observed during the IT bubble burst. In the foreign exchange market, the daily movements of the Hong Kong dollar/US dollar exchange rate have been rather small and mainly influenced by the short-term interest rates. Fund flows in different directions might have neutralised the impact of other markets on the foreign exchange market. A broad interpretation of these findings is that Hong Kong financial markets appear to be more aligned with the US markets in turbulent times, but relatively more integrated with the Mainland markets during the tranquil periods.

Keywords: Financial markets interactions; Financial crisis (search for similar items in EconPapers)
JEL-codes: C22 E44 F36 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-06
New Economics Papers: this item is included in nep-cna, nep-ifn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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