The Study On Linkage Among China’s Financial Markets

The financial markets are the sum of relationship of supply and demand and operating mechanism usually, and the relationship of supply and demand is formed by trading objects which for financial assets. They not only provide a trading platform for financial assets, but also the degree of linkage relationship between the financial markets can be largely reflected the level of development and the convenience of financial asset flow in the financial markets. The China’s financial markets including stock market, foreign exchange market, money market and derivatives market, and research linkage relationship between them not only explore the degree of development of China’s financial markets, but also can provide some useful references for investors about financial assets investment. In addition, based on the empirical results of the linkage relationship between the China’s financial markets are also able to explore the ideas and vision of the China’s financial reform to some extent.In the first chapter, there is firstly introduces the research background, research methods, research ideas and major innovation of this paper. Then, in the second chapter, the chapter focuses on combing the relevant literature of domestic and foreign scholars about inner-linkage relationship in the financial markets, the inter-linkage relationship between financial markets and the issue of China’s financial system reform, and which also produces relevant comments about these literatures. Then, in the third chapter, the chapter introduces the basic characteristics, the development process and development status of China’s financial markets about stock market, foreign exchange market and money market in detail. In the fourth chapter, the chapter introduces some relevant measurement methods, such as vector auto regression (VAR) model, Granger causality test, nonlinear Granger causality test, GARCH model family and a directed acyclic graph (DAG) methods, and so on.In the fifth chapter, this chapter studies the inner-linkage relationship in stock market, foreign exchange market, and money market. Among them, in the inner-linkage relationship about stock market, this chapter focuses on inner-linkage relationship in the China’s multi-level stock (capital) market, and inter-linkage relationship between China’s stock market and other major stock markets around the world. In the inner-linkage relationship of the China’s multi-level stock (capital) market, this chapter investigates the nonlinear interdependence and the maturity level of China’s multi-level stock (capital) market in quantity, and then explores the evolution trace of nonlinear interdependence based on the nonlinear dynamic analysis. Our results show that in the early period of the Small and Medium-sized Enterprise Board market (SME), there exists a significant "Squeezing Effect" from MB to SME, and some "Shock Effect" from SME to MB. That is, China’s multi-level stock (capital) market is far from mature during that period. Yet, with the launch of the Growth Enterprise Market (GEM) after SME, there is no "Squeezing Effect" or "Shock Effect" among them, so the China’s multi-level stock (capital) market becomes mature at this time. In the study of inter-linkage relationship between China’s stock market and other major stock markets around the world, during the subprime mortgage crisis, China’s stock market was always the recipient of the risk, and played the role of risk-taking. During the European debt crisis, the role of risk-taking decreased significantly in China’s stock market and had risk overflow in some extent. In the global major stock markets’risk contagion network of the two financial crises, the U.S. stock market is the only leader of global major stock markets. In addition, by contrast two financial crises, the higher degree of linkage relationship in the subprime mortgage crisis than the European debt crisis between the world’s major stock markets. In the study of inner-linkage relationship of foreign exchange market, this chapter shows that the pricing power of RMB spot exchange rate and the RMB forward exchange rate are all not outside the onshore exchange market, but the ability of price discovery about CNY market and CNH market are all still weak, and this chapter does not find that the RMB spot exchange rate between CNY market and CNH market have a causal relationship. In the inner-linkage relationship of money market, this chapter takes interbank market and repo market for example, and the results show that both interbank market and the repo market are exist bidirectional nonlinear Granger causality, but the nonlinear Granger causality of interbank market to repo market relatively more significant. Meanwhile, Shibor rate has more attributes of the base rate compare with other market interest rates.In the sixth chapter, this chapter studies the inter-linkage relationship between the stock market and the foreign exchange market, the stock market and the money market, the foreign exchange market and the money market. In the inter-linkage relationship between the stock market and foreign exchange market, this chapter finds that there is only unidirectional nonlinear Granger causality of the RMB exchange rate affects the CSI500, and does not has any nonlinear Granger causality between the RMB exchange rate and CSI100. The heterogeneity of the RMB exchange rate impact on large-cap and small-cap stock largely due to the structural differences of the large-cap stock and small cap stock, and the structural differences is an important reason for the different impact of hot money flows, and hot money flows influence the heterogeneity of the RMB exchange rate impact on large-cap and small-cap stock in some extent. In the inter-linkage relationship between the stock market and money market, we find that interest rate and stock price have no linear Granger causality relationship, but the nonlinear Granger causality test results show that interest rate and stock price have nonlinear Granger causality relationship of interest rate affects stock price. So the nonlinear Granger causality test method can capture some information which linear Granger causality test method cannot capture. Meanwhile, the results also show that the inter-linkage relationship between China’s money market and stock market exist, but which is still weak, so our government should further deepen the reform of financial markets in order to change the status quo of long division. In the inter-linkage relationship between the foreign exchange market and money market, the empirical results by DCC-GARCH model and nonlinear Granger causality test method find that no matter the whole sample period, or the process of interest rate marketization, or the process of exchange rate marketization, exchange rate are all impacts greater on the interest rate than interest rate impact on exchange rate, and the result has strong robustness.In the seventh chapter, this chapter takes the futures market and spot market for example, and studied the inter-linkage relationship between the financial future market and spot market, the metal future market and spot market, the agricultural future market and spot market. The results of this chapter show that metal future market has strong price discovery function, the agricultural future market secondly, and the financial future market is weak relatively. Specific performance:the causal relationship of future price to spot price in Shanghai gold future market and Shanghai copper future market are all have significant nonlinear Granger causality, the causal relationship of future price to spot price in wheat future market and corn future market are all also have significant nonlinear Granger causality relatively. While the causal relationship of future price to spot price in CSI300stock index future market and Treasury simulation future market are weak relatively. Finally, this chapter also finds that the traditional linear Granger causality test method may be make findings has a larger deviation due to omitted variables’ nonlinear characteristics.In the eighth chapter, on the basis of the linkage relationship of above financial markets, and combined with the actual situation in China, this chapter studies the issue of China’s financial system reform, which firstly studies the situation, objectives and significance of China’s financial system reform, and then analyzes the ideas and vision for China’s financial system reform in depth. This chapter also discusses the order issue of RMB exchange rate marketization and interest rate marketization. Finally, in the ninth chapter, this chapter proposes the summary and outlook of this paper.