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Dynamic co-movements and diversification benefits: The case of the Greater China region, the UK and the US equity markets

Author

Listed:
  • Guidi, Francesco
  • Savva, Christos S.
  • Ugur, Mehmet

Abstract

This paper investigates the level of long-run co-movements and short-run dynamics among the Greater China region (Hong Kong SAR, Mainland China and Taiwan), the UK and the US stock markets. Although stock-price-index (SPI) co-movements are established in the long-run, the dynamic analysis based on a fixed rolling window of 160 weeks points out only intermittent episodes of long-run co-movements. Using an asymmetric dynamic covariance approach, we find positive but low and insignificant conditional correlations between stock market returns. These findings indicate scope for diversification benefits, the extent of which is estimated on the basis of different portfolio choices. Our portfolio analysis indicates that both UK and US investors would have secured higher levels of mean returns on the diversified portfolio. Furthermore, pairwise tests of equality show that the differences in the Sharpe ratios are statistically significant only in the case of UK investors.

Suggested Citation

  • Guidi, Francesco & Savva, Christos S. & Ugur, Mehmet, 2016. "Dynamic co-movements and diversification benefits: The case of the Greater China region, the UK and the US equity markets," Journal of Multinational Financial Management, Elsevier, vol. 35(C), pages 59-78.
    • Handle: RePEc:eee:mulfin:v:35:y:2016:i:c:p:59-78
    DOI: 10.1016/j.mulfin.2016.04.002
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    Citations

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    Cited by:

    1. Cagliesi, Gabriella & Guidi, Francesco, 2021. "A three-tiered nested analytical approach to financial integration: The case of emerging and frontier equity markets," International Review of Financial Analysis, Elsevier, vol. 74(C).
    2. Wu, Fei, 2020. "Stock market integration in East and Southeast Asia: The role of global factors," International Review of Financial Analysis, Elsevier, vol. 67(C).
    3. Zheng, Yanting & Luan, Xin & Lu, Xin & Liu, Jiaming, 2023. "A new view of risk contagion by decomposition of dependence structure: Empirical analysis of Sino-US stock markets," International Review of Financial Analysis, Elsevier, vol. 90(C).
    4. Batten, Jonathan A. & Szilagyi, Peter G., 2016. "The internationalisation of the RMB: New starts, jumps and tipping points," Emerging Markets Review, Elsevier, vol. 28(C), pages 221-238.
    5. Deev, Oleg & Lyócsa, Štefan & Výrost, Tomáš, 2022. "The looming crisis in the Chinese stock market? Left-tail exposure analysis of Chinese stocks to Evergrande," Finance Research Letters, Elsevier, vol. 49(C).
    6. Lucía Morales & Bernadette Andreosso-O’Callaghan, 2018. "The Impact of Brexit on the Stock Markets of the Greater China Region," IJFS, MDPI, vol. 6(2), pages 1-19, May.
    7. Thomas, Nisha Mary & Kashiramka, Smita & Yadav, Surendra Singh & Paul, Justin, 2022. "Role of emerging markets vis-à-vis frontier markets in improving portfolio diversification benefits," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 95-121.

    More about this item

    Keywords

    The greater China region; Cointegration; Rolling windows; Conditional correlation; Diversification;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G1 - Financial Economics - - General Financial Markets

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