China And The United States Stock Market Linkage Empirical Research

With the development of the world economic integration and the information technology, the linkage between the world stock markets have been greatly enhanced. It has attracted the attention of academicians and international investors. There have been numerous researches about the linkage between the stock markets of the advanced countries. However, few are analyzing the linkage between the emerging stock markets or between it with the advanced stock markets. With the gradually development and maturity of the Chinese economy and capital market, the linkage between Chinese stock market with the international stock market has been more and more significant. The linkage of Chinese stock market with American stock market, the leader of the global stock markets, especially after the financial crisis, is expected to show new characteristics.This paper systematically analyzed the linkage between Chinese and American stock markets using the 3041 data from 1998.01.06 to 2010.12.31, which has been divided into four specific periods. Firstly, this paper comprehensively discussed and compared the yield rate series of Chinese and American stock markets. Secondly, this paper analyzed and compared the linkage of the yield rate in the four specific periods using VAR model, Granger Causality test, Impulse Response Function, and Variance Decomposition model. Considering the jet lag between China and America, this paper analyzed the information transmission effect from Chinese stock market and American stock market on the same calendar date using the SVAR model. Finally, this paper analyzed the linkage of the volatility between Chinese and American stock markets using bivariate GARCH model.The empirical results showed that with the gradual development of Chinese stock market, especially after the financial crisis, the linkage of yield rate between Chinese and American stock markets has been strengthened. The Spillover effect from American stock market to Chinese stock market is significant. There is no obvious spillover effect from Chinese stock market to American stock market. However, because of the jet lag, there is significant information transmission effect from Chinese stock market to American stock market on the same calendar date. The results of the bivariate GARCH model showed that the linkage of volatility between Chinese and American stock market is significant.