Effects of the open policy on the dependence between the Chinese 'A' stock market and other equity markets: An industry sector perspective

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper investigates the effect of the open policy introduced in 2002 to allow foreigners to invest in the Chinese A share market on the Chinese domestic capital market, especially on the dependence between the financial index returns of the A shares and those of some emerging markets, specifically Hong Kong, Singapore, Thailand, Korea and Taiwan as well as the developed markets US, Japan and Australia. The results of nonparametric plots and copula model estimates of these dependence structures provide evidence of weak dependence in these markets before the introduction of the open policy, except for the US and Japan, and the tail dependence is found to be insignificant for all country pairs. These dependence structures are adequately captured by Clayton and normal copula models. On the other hand, in the period 2002-2009, there is significant dependence in all but the Korean market, as indicated by Symmetric Joe-Clayton, Clayton and rotated Gumbel copula models. Further, the significant lower tail dependence of the A shares with other markets was found, except for the US, Japan and Korea, which indicates that the financial sectors returns in these five pair markets move downwards together. These findings have implications for international portfolio diversification and financial market participants.
Original languageEnglish
Pages (from-to)49 - 74
Number of pages26
JournalJournal of International Financial Markets, Institutions and Money
Volume21
Issue number1
DOIs
Publication statusPublished - 2011

Cite this

@article{c57ba2628b9f41fcaaba8de741be61e8,
title = "Effects of the open policy on the dependence between the Chinese 'A' stock market and other equity markets: An industry sector perspective",
abstract = "This paper investigates the effect of the open policy introduced in 2002 to allow foreigners to invest in the Chinese A share market on the Chinese domestic capital market, especially on the dependence between the financial index returns of the A shares and those of some emerging markets, specifically Hong Kong, Singapore, Thailand, Korea and Taiwan as well as the developed markets US, Japan and Australia. The results of nonparametric plots and copula model estimates of these dependence structures provide evidence of weak dependence in these markets before the introduction of the open policy, except for the US and Japan, and the tail dependence is found to be insignificant for all country pairs. These dependence structures are adequately captured by Clayton and normal copula models. On the other hand, in the period 2002-2009, there is significant dependence in all but the Korean market, as indicated by Symmetric Joe-Clayton, Clayton and rotated Gumbel copula models. Further, the significant lower tail dependence of the A shares with other markets was found, except for the US, Japan and Korea, which indicates that the financial sectors returns in these five pair markets move downwards together. These findings have implications for international portfolio diversification and financial market participants.",
author = "Weiwei Luo and Robert Brooks and Paramsothy Silvapulle",
year = "2011",
doi = "10.1016/j.intfin.2010.08.003",
language = "English",
volume = "21",
pages = "49 -- 74",
journal = "Journal of International Financial Markets, Institutions and Money",
issn = "1042-4431",
publisher = "Elsevier",
number = "1",

}

TY - JOUR

T1 - Effects of the open policy on the dependence between the Chinese 'A' stock market and other equity markets: An industry sector perspective

AU - Luo, Weiwei

AU - Brooks, Robert

AU - Silvapulle, Paramsothy

PY - 2011

Y1 - 2011

N2 - This paper investigates the effect of the open policy introduced in 2002 to allow foreigners to invest in the Chinese A share market on the Chinese domestic capital market, especially on the dependence between the financial index returns of the A shares and those of some emerging markets, specifically Hong Kong, Singapore, Thailand, Korea and Taiwan as well as the developed markets US, Japan and Australia. The results of nonparametric plots and copula model estimates of these dependence structures provide evidence of weak dependence in these markets before the introduction of the open policy, except for the US and Japan, and the tail dependence is found to be insignificant for all country pairs. These dependence structures are adequately captured by Clayton and normal copula models. On the other hand, in the period 2002-2009, there is significant dependence in all but the Korean market, as indicated by Symmetric Joe-Clayton, Clayton and rotated Gumbel copula models. Further, the significant lower tail dependence of the A shares with other markets was found, except for the US, Japan and Korea, which indicates that the financial sectors returns in these five pair markets move downwards together. These findings have implications for international portfolio diversification and financial market participants.

AB - This paper investigates the effect of the open policy introduced in 2002 to allow foreigners to invest in the Chinese A share market on the Chinese domestic capital market, especially on the dependence between the financial index returns of the A shares and those of some emerging markets, specifically Hong Kong, Singapore, Thailand, Korea and Taiwan as well as the developed markets US, Japan and Australia. The results of nonparametric plots and copula model estimates of these dependence structures provide evidence of weak dependence in these markets before the introduction of the open policy, except for the US and Japan, and the tail dependence is found to be insignificant for all country pairs. These dependence structures are adequately captured by Clayton and normal copula models. On the other hand, in the period 2002-2009, there is significant dependence in all but the Korean market, as indicated by Symmetric Joe-Clayton, Clayton and rotated Gumbel copula models. Further, the significant lower tail dependence of the A shares with other markets was found, except for the US, Japan and Korea, which indicates that the financial sectors returns in these five pair markets move downwards together. These findings have implications for international portfolio diversification and financial market participants.

U2 - 10.1016/j.intfin.2010.08.003

DO - 10.1016/j.intfin.2010.08.003

M3 - Article

VL - 21

SP - 49

EP - 74

JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

SN - 1042-4431

IS - 1

ER -