The Study Of Co-movement Between China's GEM Market And The Main-board Market

The official push-out of Chinese GEM in 2009 was considered as another important milestone in the development process of Chinese capital market. Chinese GEM is a stock market which is independent from the main-board market and has equal position with the main-board market. GEM is a market which has higher risk and bigger volatility than the main-board market, so whether or not the risk of GEM could significantly influence the main-board market. And as two markets which operate in the same political and economy environment, whether or not there is trend of moving together between GEM and the main-board market--which is called co-movement, and how the two markets affect each other, and whether or not the risk of GEM could influence the main-board market. The study of these problems has important theoretical and realistic meaning for development of Chinese GEM and the whole capital market. Therefore this paper has carried out intensive research into the co-movement between Chinese GEM and the main-board market.Firstly this paper introduced several theories of co-movement between security markets and carried out theoretical analysis about the co-movement Chinese GEM and the main-board market. This paper also gave the definition of GEM and summarized the main characters of Chinese GEM. Besides this paper carried out comparative analysis of GEM and the main-board market from three aspects which were the issue qualification, the industry distribution and the state of funds recruitment. Based on that this paper carried out empirical research of the co-movement between Chinese GEM and the main-board market. Secondly this paper set up univariate GARCH model and added dummy variable into the variance equation to study whether or not the push-out of GEM had affected the volatility of the main-board market and the extent of the effect. Thirdly this paper employed Johansen co-integration test to study the long-term equilibrium relationship between the main-board market and the. GEM market. Lastly this paper set up VAR model and employed impulse response function, variance decomposition of empirical test and Granger causality test to study the co-movement between the main-board market and the GEM market.According to the empirical study, the paper drew conclusions as follows: firstly, the push-out of GEM of china had not significantly intensified the volatility of the main-board market. Secondly, the result of Johansen co-integration test revealed that there was no co-integration relationship among the index of main-board market, the index of small-and-medium enterprise board and GEM index of China, which means there was no long-term equilibrium relationship between the main-board market and the GEM market. Thirdly, the result of impulse response function revealed that shock from main-board market in Shenzhen affected the GEM market obviously, but shock from the GEM market had little effect on the GEM market. In addition, the result of variance decomposition also revealed that at present the main-board market in Shenzhen had great effect on the GEM market, but the GEM market did not have obvious effect on the main-board market in Shenzhen. Fourthly, the result of Granger causality test revealed that there exist unidirectional Granger causality relationship between the lucre ratio of the GEM index and the lucre ratio of index of main-board market in Shenzhen and there exist two-way Granger causality relationship between the lucre ratio of the GEM index and the lucre ratio of index of small-and-medium enterprise board in Shenzhen.