Study On The Co-movement Between Chinese And American Stock Market

Since 1980s,China began to perform financial market reform.With the rapid development of Chinese financial market,Chinese stock market transformed from isolation to opening up.The linkage between Chinese and foreign stock market grows deeply.As a new market country,China's stock market is faced with both the lagging system that needs to be improved,and the impact of the international market.With the a series of policies to open up the domestic financial market,the world's stock markets,especially the stock markets of major developed countries,have an increasingly significant impact on China's stock market.Since the 1970s,many foreign scholars have found that the stock markets among major developed countries have a long-term trend of rising and falling together.In addition,since the 1990s,before and after several large-scale and long-term financial crises across the world,stock markets in many countries have also produced a certain degree of linkage effect.Then,along with Chinese financial market opening,whether Chinese stock market has a linkage with the stock markets of the major developed countries,and whether the co-movement would be affected by the negative events such as the financial crisis,will be worthy of study.Based on the daily data of Chinese and American stock indices since China entered WTO,this paper makes a research on whether the stock markets of China and the America have co-movement,and the mechanism of the linkage.We also pay attention to the impact of negative financial events on the co-movement of stock markets between two countries.In this paper,maximum overlapping discrete wavelet transform and DCC-GARCH model are used to study the changes of stock market co-movement between China and America from the perspectives of different time intervals and overall linkage trend.Firstly,we decompose the stock index return series several times by using the overlapping discrete wavelet transform,and obtain the information based on different time scales.We calculate the cross-correlation coefficient and cross-covariance to compare the differences of stock market linkage between China and the America in different time scales.We use Granger test to find out whether the stock market co-movement of two countries is the one-way guidance or the common of both sides.Secondly,we use DCC-GARCH model to study the dynamic changes of co-movement between two countries over time.We also focus on the changes of the co-movement before and after extreme negative shocks.Through empirical research,we draw the conclusion that the stock markets of China and America have a certain degree of linkage for a long time.The co-movement is produced by both the Chinese market and the American market.In different time intervals,the co-movement between two stock markets is different.In addition,extreme negative shocks,such as the 2008 US financial crisis and the 2015 China stock market disaster,have a significant impact on the co-movement.On this basis,we put forward suggestions on pushing financial market reform,preventing international financial risks,rationally allocating assets and avoiding investment risks.