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Comovements between Chinese and global stock markets: evidence from aggregate and sectoral data

Author

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  • Thomas C. Chiang

    (Drexel University)

  • Lanjun Lao

    (Fudan University)

  • Qingfeng Xue

    (CES Finance Holding Co. Ltd.)

Abstract

This paper investigates the dynamic correlations between Chinese stock returns and global markets at both the market and sectoral levels. Statistics suggest that stock-return correlations across markets are time-varying and display structural breaks. An upward shift in stock return correlations is associated with China’s adoption of a higher degree of financial liberalization. The evidence indicates that the stock returns of the financial sector exhibit the highest correlation across countries among 10 sectors. Low correlations are present in the Health Care, Telecommunications, and Utilities sectors. The correlations are closely tied to geographic location: the correlation with Hong Kong is the highest, followed by South Korea, Japan, Europe and the US. The time-series stock-return correlations are positively correlated with the conditional variance and variance premiums.

Suggested Citation

  • Thomas C. Chiang & Lanjun Lao & Qingfeng Xue, 2016. "Comovements between Chinese and global stock markets: evidence from aggregate and sectoral data," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1003-1042, November.
    • Handle: RePEc:kap:rqfnac:v:47:y:2016:i:4:d:10.1007_s11156-015-0529-x
    DOI: 10.1007/s11156-015-0529-x
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    Cited by:

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    5. Burdekin, Richard C. K & Tao, Ran, 2021. "From Shanghai to Sydney: Chinese stock market influences on Australia," Finance Research Letters, Elsevier, vol. 38(C).
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    7. Qian, Ya & Härdle, Wolfgang Karl & Chen, Cathy Yi-Hsuan, 2017. "Industry Interdependency Dynamics in a Network Context," SFB 649 Discussion Papers 2017-012, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    More about this item

    Keywords

    Stock market linkages; Smooth transition; Variance premium; Conditional variance; DCC model; Comovements;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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