Co-movements of Shanghai and New York Stock Prices by Time-varying Regressions
Gregory C. Chow, Changjiang Liu, Linlin Niu
Journal of Comparative Economics
#002146 20131014 (published) Views:272
We use time-varying regression to model the relationship between returns in the Shanghai and New York stock markets, with possible inclusion of lagged returns. The parameters of the regressions reveal that the effect of current stock return of New York on Shanghai steadily increases after the 1997 Asian financial crisis and turns significantly and persistently positive after 2002 when China entered WTO. The effect of current return of Shanghai on New York also becomes significantly positive and increasing after 2002. The upward trend has been interrupted  during the recent global financial crisis, but reaches the level of about 0.4-0.5 in 2010 for both  markets. Our results show that China’s stock market has become more and more integrated to the  world market in the past twenty years with interruptions occurring during the recent global  economic downturn.
JEL-Codes: C29; C58; G14; P43
Keywords: China; Globalization; Rate of Return; Stock Markets; Time-varying parameter regression.

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