| Based on modern portfolio selection theory,investors look for theportfolio of return maximum and risk minimum if the correlations ofdifferent stock returns are smaller in international markets than in thedomestic markets. Since 1980's, capital flow has been increasingrapidly.Grubel(1968),Lee(1969),Levy and Sarnat(1970),Solnik(1974)and Brennan and Cao(1997) all explained this trend. Financial markets(especially stock markets) have played an important role in improving thecapital flow. And since then, many researchers have shown a greatinterest in studying the interdependence of international stock markets. Beginning with the seminal works of Mandelbrot (1963) and Fama(1965) ,evidence indicates that the empirical distribution of the dailystock returns time series differs significantly normal distribution .Theempirical findings have three characteristics : asymmetry ,leptokurtosisand volatility clustering . ARCH models( Engle 1982 ,Bollerslev 1986)can interpret these observed properties of assets prices. But a new modelis needed to make allowances for asymmetric distribution of stock returnsthat the GARCH model fails to capture. Nelson proposed the ExponentialGARCH (EGARCH) model. And this paper we use bivariate EGARCHmodel extended by Koutmos and Booth (1995) to describe theasymmetric impact of good news (market advances) and bad news(market declines) on volatility transmission. Because of the market segmentation in China's stock markets, that isto say,three different types of investors and money in a single country israrely in the world ,which give us a new prospective to study theinterrelationships of stock markets between China and other stockmarkets. The main findings of this paper are as follows: 1 1. Both A-share and B-share markets in Shanghai Stock Exchange(SSE) and Shenzhen Stock Exchange (SZS) surely appears leverageeffects, though compared to A shares, this type of characteristics of the Bshare's are less apparent. 2. During the whole period , from Hong Kong stock market (HSI ) to inShanghai A-share market (SSEA) , from New York stock market (DJIA)to Shenzhen A-share market (SZSA) shows no significantly spilloverseffects . But spillover effects from HSI to SSEB, from DJIA to SSEB aresignificant. Furthermore we found strong evidence that spillovers areexists from HSI to SSEB, from DJIA to SSEA. 3. Before the openness of B-shares, HSI shows no spillover effects onSSEA and SZSA,SZSB,DJIA shows no spillover effects on SZSB. Alsothe volatility of DJIA shows an apparent spillover effects to SSEA andSSEB, HIS shows an apparent spillover effects to SSEB. 4. After the openness of B-shares, from HSI to SSEA,SZSA,fromDJIA to SSEA,SSEB show no significant spillover effects. But thetransmission mechanism of HSI to SSEB,SZSA,DJIA to SZSA ,SZSBare significant. 5. As for the transmission mechanism of Chinese stock markets toother two major international stock markets, we find no significantevidence from SSEB and SZSB to DJIA, SSEB to HSI. However, fromstart to end SZSB shows a significant spillover effects on HSI. Theremainder of this paper is organized as follows: Chapter 1 discusses the backgrounds, intention, methodology andprocedures of this paper; Chapter 2 describes the related literature of international stockmarkets and Chinese stock markets respectively; Chapter 3 discusses the University and Multivariate EGARCH modelspecification and the meanings of different parameters; Chapter 4 shows empirical results; Chapter 5 offers a summary and gives concluding remarks. The main innovations of this paper are as follows: 1. This subject provides a new prospective to investigate the financiallinkages between the developed countries and developing countries. Alsoit gives a new view about the market segmentation exists in China's stockmarkets. 2. In methodology, we use bivariate EGARCH model, which is scarcelyused in China, to model the financial linkages between Chinese stockmarket and international stock markets. This model captures theasymmetric effect of 'good' and 'bad' news on the... |
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