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The Dynamic Causal Relationship Between Stock Market And Derivative Market In Hong Kong Undying EGARCH Model

Posted on:2009-04-15Degree:MasterType:Thesis
Country:ChinaCandidate:X Y LiuFull Text:PDF
GTID:2189360272473855Subject:Applied Mathematics
Abstract/Summary:PDF Full Text Request
With the issuing of derivative warrant in domestic market and the development in Hong Kong, the research of causality relation between returns and volume percentage changes in stock and derivative market has more and more significance. The research is useful to realize the microcosmic structure, information flow style and price distribute feature of the two markets, and also the important means of understanding arbitrage opportunity and market efficiency. The dynamic relation of the two markets in Hong Kong is significant in supplying constructive suggestion to domestic market.Linear and nonlinear Granger causality tests are used to examine the relation between returns and volume percentage changes of stock market and derivative market in Hong Kong using Eviews and Matlab software. We find evidence of significant bidirectional linear and nonlinear causality between the two markets. But ARCH effect is one of the most important reasons of nonlinear structure of stock market returns, the nonlinear Granger causality between returns and volume percentage may be caused by the variance effect of information flow. So taking this in account, we take the causality test of the two markets after filtering the ARCH effect of returns and volume percentage time series by EGARCH model. We find that derivative market have significant ARCH effect while stock market didn't have, but the causality relation between the two markets still exist. The Granger causality caused by derivative market to stock market is stronger than causality caused by stock market. So the derivative market is laying in the leading station, the information flows from derivative market to stock market. And finally, we get some policy suggestion to direct our construction of derivative market from Hong Kong.
Keywords/Search Tags:Stock market, Derivative market, Granger causality, ARCH effect
PDF Full Text Request
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