Co-movement Effect Between China And The Main Global Stock Indexes Based On Smooth Transition Regression Model

This paper applies smooth transition regression model to examine co-movement effect between China stock market and the main global stock markets during the period from January 4, 2001 to August 17, 2009. The main global stock indexes include Dow Jones Industrial Average, Nikkei 225, Hang Seng, FTSE 100, RTS, BSE30 and BOVESPA. Then the paper extends the analysis to three period divided by reform of non-tradable shares and the sub-prime crisis. Empirical results show that: (1) nonlinear relationships are existed between SSEC and the main global stock indexes; (2) reform of non-tradable shares promotes the integration of China stock market and global stock markets, while measures to promote the competitiveness of China stock market should be enhanced; (3) effects on China stock market of the main global stock markets increases after the sub-prime crisis, with more impact of developed markets than developing ones; (4) effects of China stock market on the main global stock markets also increases after the sub-prime crisis, while more impact on developing markets than developed ones; (5) there are close relationship between China Mainland stock market and Hong Kong stock market. Thus, under the background of financial integration with co-movements among global stock markets as the significant features, China stock market must enhance the status and voice in global capital markets with self-reform of the mechanism. More importantly, the government must notice financial risk prevention, strengthen market supervision, establish risk early-warning system and consequently reduce the possibility of a crisis. Investors may judge stock market trends according to the co-movement relationships between China stock market and the main global stock markets, and choose appropriate cross-border portfolio to obtain revenue while avoiding risk.