Study Of Co-movement Between Chinese Stock Market And U.s. Stock Market Under The Background Of Financial Crisis

At the end of 20th century, with the rapid development of the process of global economic integration and financial liberalization, both Chinese real economy and financial market are all becoming more and more closely with international markets. And with the rapid development of Chinese economy and continuous reform of economic structure, financial market, in particular the stock market made a great contribution to our market economics. However, the outbroke of the U.S. Sub-prime Mortgage Crisis in early 2007 and the consequent U.S. Financial Crisis had a big impact on China's stock markets and caused a sharp drop on our stock markets. At the time of the fast development of Chinese financial market, it is very important to study the co-movement effect between Chinese stock market and U.S. stock market. So the research of this paper has very important significances for how to recognize the current financial crisis deeply, how to defend and reduce the shock of external stock markets and how to optimize the resource allocation function of China's stock market.At the the background of U.S. Sub-prime Crisis and the Financial Crisis, this paper studies the co-movement between Chinese stock market and U.S. stock market from both theoretical and empirical aspects. In theoretical study, this paper summs up the export trade, international capital flows, investor psychology and conduction between markets as the transmission routes of the financial crisis.Then it analyses the co-movement between Chinese stock market and U.S. stock market from these four aspecs. Then, the paper uses empirical methods from both returns and returns volatility to study the co-movement effect between the two markets. It selects three major stock market indexes data from Shanghai, Hong Kong and United States stock market separately as sample data. In order to make comparative study, the sample is divided into three sections. First, it uses correlation coefficients, Granger causality test, VAR model, impulse response functions and variance decomposition methods to analyse the co-movement of stock returns of Chinese stock market and U.S. stock market. Then it uses single variable GARCH model to analyse the co-movement of the volatility of stock returns.The results of theoretical study show that the four routes of transmission are all indicate the the co-movement effect between Chinese stock market and U.S. stock market after the Sub-prime Crisis. The empirical analysis results show that after the Sub-prime Crisis, the co-movement between Chinese stock market and U.S. stock market changed. Whether the co-movement of stock market between Hong Kong and U.S.or that between Shanghai and U.S. all show a marked increase. Furthermore, with the spread of the crisis, this co-movement effect also show a growth trend. Finally, according to the four different routes of transmission, the paper proposes several policy recommendations in order to prevent and defuse the risk of Financial Crisis.