The Linkage Between China Stock Market With The Global And Regional Stock Market

The linkage between stock market has always been an attractive issue in economic domain. With the rapid development of chinese stock market, its linkage with local regions as well as the whole world arouse great attention of chinese as well as overseas scholars. The stduy of the linkage between chinese stock market with local regions and the whole world has two important applications:firstly the international and domestic investors need this information to diversify or allocate their investment properly, and secondly the government need to take it into consideration taking measure to keep the market's stability and safety. This paper aims to exlpore whether or not there is significantl linkage between chinese stock market and regional or global stock markets and try to quantify the linkage, besides the impacts of financial crisis on the linkage between the three will be discussed.The model proposed by Akdogan(1996) which can measure market integration quantifiably and the extention made by Zheng Yi(2009) which can evaluate regional and global linkage levels in one model synchronously will be used in this paper. The data of MSCI AC world index, far east index and Shangzheng index will be used as proxies and the sample period is from 1991 to 2010. in order to assess the result from the model, several ecometric tools will be used to test the data, which include corelation analysis, granger causalty test, vector error correction model and impulse-var decomposition. The result show a gradual increasing trend of the linkage between chinese stock market and regional and global stock markets, especially recent years, but it is an unilateral process because stagnation or even back-wards movement ocurs sometimes. Chinese market seems overreact to financial crisis. After asian financial crisis in 1997, the linkage between chinese stock market and far east stock market soared for a while and the linkage between chinese and global market increased sharply after the sub-credit crisis, but both of them return to nomal level years later. There are two innovations in this paper. Firstly, a model which can evaluate regional and global linkage levels in one model synchronously without the problem of Multi-Collinearity are used. Next because the length of sample period, the impact of the two financial crisis on the linkage can be assessed and compared.