IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v12y2012i3p397-410.html
   My bibliography  Save this article

Nonlinear interdependence of the Chinese stock markets

Author

Listed:
  • Abdol S. Soofi
  • Zhe Li
  • Xiaofeng Hui

Abstract

The methodologies and assumptions in financial integration studies are problematic and may lead to spurious empirical results. Using surrogate data analysis and the mutual prediction method of testing for nonlinear interdependence, it is feasible for an analyst, with a scant knowledge of the underlying dynamics of two dynamical systems, to show whether or not the systems are interdependent. This study applies these techniques in testing for nonlinear interdependence of three Chinese stock markets: Shanghai, Shenzhen, and Hong Kong. The empirical results of the present study indicate that the stock market series are nonlinear and that the Chinese stock exchanges are nonlinearly interdependent. Specifically, the evidence indicates that Shanghai and Shenzhen markets are bi-directionally interdependent, while Shanghai and Hong Kong as well as Shenzhen and Hong Kong markets are unidirectionally interdependent, with the direction of interdependence going from the mainland's markets to the Hong Kong market.

Suggested Citation

  • Abdol S. Soofi & Zhe Li & Xiaofeng Hui, 2012. "Nonlinear interdependence of the Chinese stock markets," Quantitative Finance, Taylor & Francis Journals, vol. 12(3), pages 397-410, November.
    • Handle: RePEc:taf:quantf:v:12:y:2012:i:3:p:397-410
    DOI: 10.1080/14697688.2010.541488
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2010.541488
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697688.2010.541488?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," The Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
    2. Abdol S. Soofi & Andreas Galka, 2003. "Measuring the Complexity of Currency Markets by Fractal Dimension Analysis," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 6(06), pages 553-563.
    3. Pesaran, M. Hashem & Pick, Andreas, 2007. "Econometric issues in the analysis of contagion," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1245-1277, April.
    4. Hsieh, David A, 1991. "Chaos and Nonlinear Dynamics: Application to Financial Markets," Journal of Finance, American Finance Association, vol. 46(5), pages 1839-1877, December.
    5. repec:bla:jfinan:v:59:y:2004:i:6:p:2809-2834 is not listed on IDEAS
    6. Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," The Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 717-763, July.
    7. Mardi Dungey & Renee Fry & Brenda Gonzalez-Hermosillo & Vance Martin, 2005. "Empirical modelling of contagion: a review of methodologies," Quantitative Finance, Taylor & Francis Journals, vol. 5(1), pages 9-24.
    8. Scheinkman, Jose A & LeBaron, Blake, 1989. "Nonlinear Dynamics and Stock Returns," The Journal of Business, University of Chicago Press, vol. 62(3), pages 311-337, July.
    9. Phylaktis, Kate & Ravazzolo, Fabiola, 2002. "Measuring financial and economic integration with equity prices in emerging markets," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 879-903, November.
    10. Bekaert, Geert & Wu, Guojun, 2000. "Asymmetric Volatility and Risk in Equity Markets," The Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 1-42.
    11. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, April.
    12. Errunza, Vihang & Losq, Etienne & Padmanabhan, Prasad, 1992. "Tests of integration, mild segmentation and segmentation hypotheses," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 949-972, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Filzen, Joshua J. & Schutte, Maria Gabriela, 2017. "Comovement, financial reporting complexity, and information markets: Evidence from the effect of changes in 10-Q lengths on internet search volumes and peer correlations," The North American Journal of Economics and Finance, Elsevier, vol. 39(C), pages 19-37.
    2. EnDer Su, 2017. "Measuring and Testing Tail Dependence and Contagion Risk Between Major Stock Markets," Computational Economics, Springer;Society for Computational Economics, vol. 50(2), pages 325-351, August.
    3. Francis, Bill B. & Hasan, Iftekhar & Kostova, Gergana L., 2016. "When do peers matter?: A cross-country perspective," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 364-389.
    4. Yang-Chao Wang & Jui-Jung Tsai & Lanxin Lu, 2019. "The impact of Chinese monetary policy on co-movements between money and capital markets," Applied Economics, Taylor & Francis Journals, vol. 51(45), pages 4939-4955, September.
    5. repec:zbw:bofrdp:2016_008 is not listed on IDEAS
    6. Ma, Tai-Yu & Rasulkhani, Saeid & Chow, Joseph Y.J. & Klein, Sylvain, 2019. "A dynamic ridesharing dispatch and idle vehicle repositioning strategy with integrated transit transfers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 417-442.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hock-Ann Lee & Kian-Ping Lim & Venus Khim-Sen Liew, 2009. "Is There Any International Diversification Benefits in ASEAN Stock Markets?," Economics Bulletin, AccessEcon, vol. 29(1), pages 392-406.
    2. Maria Kasch & Massimiliano Caporin, 2013. "Volatility Threshold Dynamic Conditional Correlations: An International Analysis," Journal of Financial Econometrics, Oxford University Press, vol. 11(4), pages 706-742, September.
    3. Soofi Abdol S, 2008. "Global Financial Integration and the MENA Countries: Evidence from Equity and Money Markets," Review of Middle East Economics and Finance, De Gruyter, vol. 4(2), pages 93-116, April.
    4. Simone Manganelli & Lorenzo Cappiello & Bruno Gerard, 2004. "The Contagion Box: Measuring Co-Movements in Financial Markets by Regression Quantiles," Econometric Society 2004 Latin American Meetings 77, Econometric Society.
    5. Metiu, N., 2011. "Financial contagion in developed sovereign bond markets," Research Memorandum 004, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    6. Støve, Bård & Tjøstheim, Dag & Hufthammer, Karl Ove, 2014. "Using local Gaussian correlation in a nonlinear re-examination of financial contagion," Journal of Empirical Finance, Elsevier, vol. 25(C), pages 62-82.
    7. Pami Dua & Divya Tuteja, 2016. "Contagion in International Stock and Currency Markets During Recent Crisis Episodes," Working papers 258, Centre for Development Economics, Delhi School of Economics.
    8. Claeys, Peter & Vašíček, Bořek, 2014. "Measuring bilateral spillover and testing contagion on sovereign bond markets in Europe," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 151-165.
    9. Martin Hoesli & Kustrim Reka, 2013. "Volatility Spillovers, Comovements and Contagion in Securitized Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 47(1), pages 1-35, July.
    10. Degryse, Hans & Penas, Maria Fabiana & Elahi, Muhammad Ather, 2012. "Determinants of Banking System Fragility: A Regional Perspective," CEPR Discussion Papers 8858, C.E.P.R. Discussion Papers.
    11. Bampinas, Georgios & Panagiotidis, Theodore & Politsidis, Panagiotis N., 2023. "Sovereign bond and CDS market contagion: A story from the Eurozone crisis," Journal of International Money and Finance, Elsevier, vol. 137(C).
    12. Bigerna, Simona & Bollino, Carlo Andrea & Ciferri, Davide & Polinori, Paolo, 2017. "Renewables diffusion and contagion effect in Italian regional electricity markets: Assessment and policy implications," Renewable and Sustainable Energy Reviews, Elsevier, vol. 68(P1), pages 199-211.
    13. Cai, Charlie X. & Mobarek, Asma & Zhang, Qi, 2017. "International stock market leadership and its determinants," Journal of Financial Stability, Elsevier, vol. 33(C), pages 150-162.
    14. Elahi, M.A., 2011. "Essays on financial fragility," Other publications TiSEM 882f55bb-10dc-4e49-95ef-e, Tilburg University, School of Economics and Management.
    15. Roszkowska Paulina & Prorokowski Łukasz, 2013. "Model of Financial Crisis Contagion: A Survey-based Simulation by Means of the Modified Kaplan-Meier Survival Plots," Folia Oeconomica Stetinensia, Sciendo, vol. 13(1), pages 22-55, December.
    16. Massacci, D., 2007. "Identification and Estimation in an Incoherent Model of Contagion," Cambridge Working Papers in Economics 0744, Faculty of Economics, University of Cambridge.
    17. Boyson, Nicole M. & Stahel, Christof W. & Stulz, Rene, 2008. "Hedge Fund Contagion and Liquidity," Working Paper Series 2008-8, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    18. Takashi Miyazaki & Shigeyuki Hamori, 2018. "The Determinants Of A Simultaneous Crash In Gold And Stock Markets: An Ordered Logit Approach," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 13(01), pages 1-25, March.
    19. Dua, Pami & Tuteja, Divya, 2016. "Financial crises and dynamic linkages across international stock and currency markets," Economic Modelling, Elsevier, vol. 59(C), pages 249-261.
    20. Peter Christoffersen & Vihang Errunza & Kris Jacobs & Hugues Langlois, 2012. "Is the Potential for International Diversification Disappearing? A Dynamic Copula Approach," The Review of Financial Studies, Society for Financial Studies, vol. 25(12), pages 3711-3751.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:12:y:2012:i:3:p:397-410. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.