Empirical Research On The Influences Of Subprime Lending Crisis On Hongkong And Mainland Stock Markets

Since the outbreak of Subprime Lending Crisis in 2007, it has seriously impacted the international financial order and caused a fierce effect on the credit crunch. The long-term accumulated systemic risk has exposure to the whole world and the damage is spreading. The Central Bank, government departments and financial institutions of the major economies have taken emergency measure to handle it. Besides, with more and more Mainland enterprises choosing Hong Kong for IPO, the relationship between the two markets become closer and closer. So this paper will take an empirical research on whether the crisis had affected the relationship between the two stock markets.The arrangement of this paper is that, firstly, we take an empirical research on when the crisis outbreak. We review the events happened in America between year 2007 and 2008 using the Markov-regime-switching-Garch model. Then we find that July 2007 is the time when the crisis outbreak. Secondly, we take the time as the cut-off point of the crisis and cut the time as two parts: one part is before the crisis and the other part is after the crisis. Then we research the co-movement between the two markets using co-integration test and Granger causality test in the two parts of time. Thirdly, we research the price discovery between the two markets using Gonzalo and Granger's measure and Hasbrouck's measure. Finally, we study the risk infection situation among America, Hong Kong and the Mainland stock markets using Copula functions. And we find that, the two markets become closer since the outbreak of the crisis.