The Dynamic Interrelationships Between the Greater China Share Markets

Nicolaas Groenewold (), Sam Tang and Yanrui Wu
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Nicolaas Groenewold: Department of Economics, The University of Western Australia
Sam Tang: Department of Economics, Chinese University of Hong Kong

No 02-02, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: This paper investigates the interrelationships between prices on the mainland Chinese share market and those in the neighbouring markets of Hong Kong and Taiwan. While there is a growing literature on interrelationships between share market including the emerging markets in Asia, very little is known about the role of mainland markets in the region. We consider the interrelationships between the Shanghai and Shenzhen exchanges and those in Hong Kong and Taiwan. We begin by combining the Shanghai and Shenzhen price indexes into a single value-weighted index and investigating its relationship to the indexes for Hong Kong and Taiwan. We find that the mainland markets are relatively isolated from the other two markets considered, although after the Asian crisis there is evidence that Hong Kong has weak predictive power for returns in the mainland. Hong Kong also clearly Granger-causes Taiwan although the reverse is not true. Both Hong Kong and Taiwan have strong contemporaneous relationships, a feature which is more market after the Asian crisis. We also analysed the two mainland markets separately, both by themselves and with Hong Kong. We found some predictability of thes prices in one market on the basis of lagged prices in the other although this was less apparent after the Asian crisis. Both before and after 1997, there were strong contemporaneous relationships between the two mainland markets, vindicating our earlier decision to treat them as a single market.

Pages: 53 pages
Date: 2002
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Citations: View citations in EconPapers (2)

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Journal Article: The dynamic interrelationships between the greater China share markets (2004)
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