Research On The Segmentation And Integration Process Of Stock Markets In Financial Crisis

The Chinese stock market internationalization has experienced a rapidly development after China has joined the WTO and all kinds of financial innovations and policies has been established. The current structure of Chineses stock market segementation are mutating and evolving. After the B share market has been opened to oridinary investors on Feb, 19, 2001 and the foundation of QFII system in December, 2002, with more and more H share companies' return to A share market and being indexed, the integration of the A, B and H share markets has becomed more and more rapidly and the domestic stock market connects more and more intimate to the Hong Kong stock market. The H share companies are mostly monopolistic or well-profited ones in domestic China while the prices of their stocks are much cheaper than the ones in domestic markets. How does the HK stock market, which is one of the mature stock markets in the world, affect and integrate with the domestic China's stock markets, which are the biggest emerging markets in the world, would be a topic worth investigating. Meanwhile, the HK market has long been integrated with the US markets, which is the biggest mature market in the world. Is there any connection and relationship between their price volatility? How does the major constitution variation impact this relationship? What's the role of Hong Kong in this impact effect between the domestic China and US? The answers to these questions can not only let us know the mechanism of risk transfer between different markets but also shed some light on the financing function, investment strategy and the mechasnism of custody.The Chinese economy has developed rapidly after its integration into the world. Meanwhile, the opness of Chinese financial markets and their connection with the world markets have brought new problems: the risk from international financial markets can transfer to Chineses markets more easily than ever. So the surveillance and control of such risks has provoked the attention of related deparments in government, industry and academy. The uncertainty of markets, adjustment of policy, bad news and unfavorable impacts, speculation power and the contagion effect between markets can all lead to awful wreck of stock markets, which means enormous amout of fund has been transferred between investors and most of them went bankruptcy and therefore the instability of society. The recent 2007 subprime crisis in US has triggered the instability of global financial markets. With the integration of Chinese stock market with the other part of the world, the instabitly has also been affected. It is of great value to investigate the mechanism of risk transfer between the market of China and the other mature stock market in developed countries and regions. This article has established several models to investigate such mechanism and hoped to be references of the further study and guide to the establishment of future reform and policy as theoretical framework.The structure of this article is as follows: Firstly the background of domestic and foreign markets and the major events which might affect the integration process are introduced, which gives a realistic logical start of this thesis. Then a comprenhensive literature review in related fields is presented, which provides a theoretical logical start point of this work. Futhermore, different models are constructed using econometric techniques to analyse the risk transferring mechanism between different markets and test the inpact of major events to market integration and their influence to financial stability. Finally conlusions and related public policies are provided to summarize the whole thesis.The innovations of this article are listed as follows: Firstly, a dynamic constant correlation multivariate GARCH model is established to measure rates of return shock and dynamic correlation and satisfying results are acquired, which significantly improve the former reseach which assumes that the correlation coefficients are constant and suit the realistic situation more favorably. Secondly, the Panel Smooth Transition Regression model, which is nonlinear time-seris model, has been used to measure the integration speed and extent between different markets and can stimulate the shift of one region to another quite well. Thirdly, this article introduced a financial stability index to study the relation between integration process and financial stability, which probe into the important issue of the imfluence of risk transfer to financial stability.