China A, The B-share Market Relevance Of Empirical Research

At present, the stock market in China has already become one of the emerging markets, with the fastest developing speed and the largest scale, in the world. Comparing A- share with B- share, however, we find that the development of the latter has already been far lagged behind the former. Associated with the market scale, active degree of transaction, fluidity and the scale of financing as well, B-stock market is far inferior to A-stock market, which makes the original localization function lost gradually. Along with the beginning of exchange rate reform of RMB and the finishing of the reform of A-share non-tradable shares in Shenzhen and Shanghai stock market, managements and people, from stock market, begin to care for the history issue on the B-share. How to deal with B-share market has become a popular issue in the securities field and academe. As for the reform of the B-share, managements, securities circle and academia tend to incorporate B-share market with A-share market. The incorporation of A-share with B-share, however, can not be accomplished within a short time.In this situation, we select the subject through studying the internal relations between A-share and B-share in this article . By analyzing the relativity between them and the relations with information fluxion, etc., we expect to offer some relatively comprehensive evidence, by demonstration research, so as to control the inherent combination between A-share market and B-share market. On one hand, since each new policy established by managements can influence the development of Chinese stock market tremendously, even change its operation, we regard the releasing of the great policy as the sign, divide the development of the B-share into several stages, and study the relationships between A-share and B-share, respectively; It is well known, on the other hand, that a method or a model only characterizes one feature of the problem. In this paper, utilizing a new method of DCC-multivariate GARCH to investigate the dynamic conditional correlation between A-share and B-share, we use BEKK multi-variable GARCH model to study Volatility Spillover relationships and also employ the model of Long Memory to study Long Memory Property between A-share and B-share, so that we can indicate the inherent relations between A-share and B-share from different angles. The demonstration results show that the gradual grandness, maturate of China security markets and the advent of some elimination market segmentation system, for instance, B-share opening to domestic investors, QFII system , the improvement of exchange rate reform of RMB and the reform of A-share non-tradable shares coming to an end in 2005, the stronger inherent relations between A-share and B-share, are all positive for incorporation of A , B-share market. The inherent relations of the two markets, however, are still not steady, the indentity between them has not been arrived yet, it is too early to incorporate. Therefore, continuing to improve the system construction of A-share market and enlarging the opening up degree of A-share and domestic opening degree of B-share, we steadily promote the RMB exchange rate reform process and further reduce institutional obstacles so as to make the difference between A shares and B shares vanish gradually, and eventually realize the merger.