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Testing for relationships between Shanghai and Shenzhen stock markets: A threshold cointegration perspective

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  • Lin, Xiaoqiang
  • Tang, Zhenpeng
  • Fei, Fangyu

Abstract

We investigate the relationships between Shanghai and Shenzhen stock market, and reveal the evidence of cross-correlations between the two stock markets. Our main findings show that Shanghai and Shenzhen stock market are cointegrated, and also present the evidence of strong error-correction effect in the short-rate equation, whereas the point estimate for the error-correction term is small and not statistical significance in the long-rate equation. Finally, Shanghai stock market ECT coefficient shows the evidence of long-term equilibrium in the first regime, while in the second regime the coefficient of correction term is larger than that of the first regime, indicating the rate convergence to long-term equilibrium is not uniform.

Suggested Citation

  • Lin, Xiaoqiang & Tang, Zhenpeng & Fei, Fangyu, 2013. "Testing for relationships between Shanghai and Shenzhen stock markets: A threshold cointegration perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(18), pages 4064-4074.
    • Handle: RePEc:eee:phsmap:v:392:y:2013:i:18:p:4064-4074
    DOI: 10.1016/j.physa.2013.04.050
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