Co-movements of Shanghai and New York Stock prices by time-varying regressions

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Title: Co-movements of Shanghai and New York Stock prices by time-varying regressions
Author: Chow, Gregory C. ; Liu, Changjiang ; Niu, Linlin
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 16/2011
Year of publication: 2011
Publication date: 1.8.2011
Published in: Published in Journal of Comparative Economics, Vol. 39, Issue 4, Dec. 2011, pp. 577-583
Pages: 20 s.
Keywords: osakkeet; hinnat; Kiina; USA; osakemarkkinat; tuotot; pörssit; Bofit-kokoelma
Abstract: We estimate a time-varying regression model to study the relationship between returns in the Shanghai and New York stock markets, with possible inclusion of lagged returns. The parameters of the regressions reveal that the effect of the current stock return for New York on that for Shanghai steadily increases after the 1997 Asian financial crisis and turns significantly and persistently positive after 2002, when China entered WTO. The effect of the current return for Shanghai on New York also becomes significantly positive and increasing after 2002. The upward trend has been interrupted during the recent global financial crisis, but reaches the level of about 0.4 to 0.5 in 2010 for both markets. Our results show that China's stock market has become more and more integrated into the world market in the past twenty years, with interruptions occurring during the recent global economic downturn.

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