China's Stock Market And The International Stock Market Linkage Study

As the globalization goes on, the stock indexes which are the leading index of economies have come to co movement, especially after the crash of 1987. Though capital account is restricted, China' s economy has merged into the world, the stock market also co-moves with foreign markets. The research focuses on co movement of China' s stock market with global markets.Based on return and volatility, this paper did an empirical research on the co movement of Shanghai index with Dow Jones, FTSE 100, Nikki 225 and HangSeng index. The research methods are correlation coefficient, contagion model and GARCH model. The results are that the co movement of Shanghai index wi th other indexes strengthens gradually after 2000 and during the sub periods of sub prime crisis, such as the Nov, 2007 and Lehman' s bankruptcy in Sep, 2008, the Dow and FTSE have a contagion on Shanghai index. After the RMB appreciation in Jul, 2005, the western countries have a volatility transmission on China.The conclusion can be help to regulation bureau and financial institutions. When disastrous comes, the regulation bureau should take actions to react to the disastrous, such as the rescue plans. To financial institutions, they should pay attention to the global markets as well as local market, take relevant trading strategies and manage risk properly.