The dynamic interrelationships between the greater China share markets

Abstract

This paper investigates the interrelationships between prices on the mainland Chinese share market and those in the neighbouring markets of Hong Kong and Taiwan. While there is a growing literature on interrelationships between share market including the emerging markets in Asia, very little is known about the role of mainland markets in the region. We consider the interrelationships between the Shanghai and Shenzhen exchanges and those in Hong Kong and Taiwan. We begin by combining the Shanghai and Shenzhen price indexes into a single value-weighted index and investigating its relationship to the indexes for Hong Kong and Taiwan. We find that the mainland markets are relatively isolated from the other two markets considered, although after the Asian crisis there is evidence that Hong Kong has weak predictive power for returns in the mainland. Hong Kong also clearly Granger-causes Taiwan although the reverse is not true. Both Hong Kong and Taiwan have strong contemporaneous relationships, a feature which is more marked after the Asian crisis. We also analysed the two mainland markets separately, both by themselves and with Hong Kong. We found some predictability of the prices in one market on the basis of lagged prices in the other although this was less apparent after the Asian crisis. Both before and after the 1997, there were strong contemporaneous relationships between the two mainland markets, vindicating our earlier decision to treat them as a single market.

Are Chinese Stock Markets Increasing Integration With Other Markets in the Greater China Region and Other Major Markets?

“…Similar to the result by Chan and Lo (2000), found that there is a significant feedback relationship between the Shanghai and Shenzhen A markets. Evidence from their cointegration tests in Groenewold et al(2004) is consistent with that of who found cointegration between the two mainland A-share indices for the period before the Asian crisis, which disappeared after the crisis. They also found a strong but relatively isolated lead-lag relationship between the two mainland A-share markets.…”

“…2 China's stock exchanges started as relatively new players in the region just recent years and have expanded rapidly in terms of capitalization, turnover, and the number of firms listed since their establishment; with the result being China's stock market becoming the second largest in Asia, behind only Japan (Groenewold, et al 2004). …”

The cross-sectional relationship between stock returns and domestic and global factors in the Chinese A-share market

“…Generally, the results of this study do not suggest there is any improvement in the A share market integration with the world markets even during the financial crisis period. This finding, to some extent, contradicts the argument of Groenewold, Tang and Wu (2004), who contend that the mainland market became more closely linked to the Hong Kong market after crisis by using vector-autoregressive models (VARs). The Hong Kong stock market, which is supposed to have a much closer relationship with the mainland, has little significance in the pricing of domestic stocks.…”

Examining the Existence of Long-Run Relationships Between East Asian Economic Integration and ASEAN Tourism Exports

“…This is not only because the financial markets in this region have grown rapidly over the past decade, but also because of the arguably asymmetric integration of the emerging Chinese economy with advanced countries in the real side of the economy and tight control over financial market. These three markets have been Despite the growing importance of the greater China stock markets and their dynamic interactions, there are only a few studies on this issue (see Johansson and Ljungwall, 2006, Groenewold et al 2004, and Cheng and Glascock, 2005. In particular, Groenewold et al (2004) investigate the interrelationships between prices on the mainland Chinese share market and those in the neighboring markets of Hong Kong and Taiwan and find a strong contemporaneous relationship between the two mainland markets but that the mainland markets are relatively isolated from the other two markets considered.…”

“…These three markets have been Despite the growing importance of the greater China stock markets and their dynamic interactions, there are only a few studies on this issue (see Johansson and Ljungwall, 2006, Groenewold et al 2004, and Cheng and Glascock, 2005. In particular, Groenewold et al (2004) investigate the interrelationships between prices on the mainland Chinese share market and those in the neighboring markets of Hong Kong and Taiwan and find a strong contemporaneous relationship between the two mainland markets but that the mainland markets are relatively isolated from the other two markets considered. Also, both Hong Kong and Taiwan have strong contemporaneous relationships, a feature that is more marked after the Asian crisis.…”