| The China Stock market has considerably changed since the establishment of the B share market. Such big events as the approaching conclusion of the non-tradable stocks (the biggest historical issue), the raise Growth Enterprises Market (GEM) and the appearance of Stock Index Futures indicate that China’s Security Market initiates a multi-layer and relatively regulated framework. By now, China’s A share market has become one of the largest one of the emerging markets with the highest speed of development and the largest scale. As, however, the initial way attracting overseas investments, B share is being marginalised and starving for reform. RMB is appreciating and possibly entering the stage of free convert in the future, so that the merge of A and B share markets is the most efficient means for the reform of the B share market. However, the merge cannot be achieved in one move, the co-movement of the A and B share markets and their stability in the process must be taken into consideration firstly.In this context, the topic of this paper is selected from the prospective that has insights into the integration of the two share markets. This paper will analyse the characteristics of the co-movement as well as time-varying correlation between the two share markets, thereby providing demonstration for the merger.This paper contracts the model of VAR-BEKK-MGARCH model and researches the characteristics of the co-movement among Shanghai A and B share index and Shenzhen A and B share index from the perspectives of profit, spillover effects of the wave and time-varying correlation. Meanwhile, long-term co-persistence of the wave among Shanghai A and B share index and Shenzhen A and B share index has been tested. The results indicates that there is a significant processive increase between Shanghai A and B share index in the short-term. Such increase mainly resulted from the profits of different markets and the enhancement of the spillover effects of the wave. Nevertheless, the Shenzhen A and B share index shows bidirection-unidireaction-bidirection trend at the spillover effects. From a long-term perspective, all the stock index within both Shanghai and Shenzhen markets appear the continuity of the wave. Further more, the correlation between the A and B share markets is continuously enhanced. The correlation has been became increased to a higher level but the different between them still exits and the correlation coefficient is not fix. In some extreme market patterns, the correlation coefficient might apparently change. Overall, the characteristic of co-movement between the A and B share markets is reasonably significant; therefore, the merge of these two markets is a practical way for the reform of B stock market. |
