The financial integration of China: New evidence on temporally aggregated data for the A-share market

Eric Girardin () and Zhenya Liu
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Zhenya Liu: People's University of China

No 160, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group

Abstract: In spite of high trade openness, existing empirical work, using daily data, has not found any evidence of international financial integration of China. In this paper we examine to what extent the Chinese A-share market, de jure protected from foreign influences by capital controls, is actually integrated with global or regional markets. We study a long sample (October 1992 through March 2005) of active trading, within the framework of a regime-switching error correction model. We confirm the role of temporal aggregation in cointegration tests. With daily or mid-week closing prices, we do not find any long run relationship with either the New York or the Hong Kong market, thus replicating previous findings. However, the use of weekly averaged prices implies that, up to late 1996, the Shanghai A-share market index was cointegrated with the S&P500. Subsequently, this relationship broke down and a long run relationship with the Hang Seng index gradually arose. Information flows, as well as the prospects of de jure financial opening, and the growing awareness of valuation concepts among Chinese domestic investors, in the presence of multiple listing of Mainland firms, help explain the evidence of financial integration in spite of capital controls

Keywords: China's A-share market; Markov-switching ECM; temporal aggregation; international financial integration (search for similar items in EconPapers)
JEL-codes: F36 G15 (search for similar items in EconPapers)
Date: 2007-02-02
New Economics Papers: this item is included in nep-cna and nep-tra
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Citations: View citations in EconPapers (31)

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Journal Article: The financial integration of China: New evidence on temporally aggregated data for the A-share market (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mmf:mmfc06:160

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