Comovement Among Mainland China, HongKong And Taiwan Stock Markets

With the process of economic integration, an increasing association among mainland China, HongKong and Taiwan stock markets has often happened. This paper analyzes comovements within the context of the jump-diffusion model with a drift component, a stochastic volatility component and a jump component. The result indicates that there is no long-term equilibrium relationship among those stock markets. Using a spillover measure based on forecast error variance decompositions from generalized vector autoregressions, it shows that cross-market return spillovers were quite limited until the global financial crisis that began in2007. The result shows that there are strong volatility clusterings within all markets. There is significant volatility spillover from mainland China to Taiwan. The three markets show stronger jump behaviors. Using mutually exciting jump model, the estimates provide evidence for self-excitation in the mainland China market, and for asymmetric cross-excitation from mainland China to HongKong and Taiwan.