| This paper uses co-integration test,VAR model and DCC-MGARCH model to analyze the long run equilibrium,short run return spillover effect and the dynamic correlation coefficient between Shanghai and the U.S.stock markets from January 3, 2005 to February 24,2009.Based on the VAR models for returns,we use impulse response function and forecast error variance decomposition to analyze the impact on these market returns as unexpected shocks strike the markets.According to the empirical analysis,we find:There exits no co-integrated relationship between these two markets for the whole period we inspect.And the Granger causality test show that,in the first sub-period,Shanghai stock market return is the Granger causality of the U.S.market return,and it is inversed when it comes to the second sub-period.The two market returns respond fast to their own market shocks and more fiercely in the second sub-period.The local market shocks are mainly responsible for the volatilities of their own market returns.There are evident periodic feature in the volatility of the two market returns,and the returns volatile intensely currently under the financial crisis. But the dynamic correlation between them becomes lower.In conclusion,Shanghai stock market has no long run equilibrium relationship with the U.S.stock market,but the short run co-movement in returns is significant. And in different period,the direction and the strength of the impact one market imposes to the other is different,which reflects the different economy background and market efficiency.Further discover that the financial crisis that comes from the U.S. doesn't enhance the correlation between the two markets.There are two implications in this paper;firstly,the government should realize the effects of the policies they make on both home and abroad;secondly,to make appropriate investment decision, the investors should pay more attention to the information that comes from the local and foreign markets. |
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