The Yields Spillovers Effect Of Stock Market In The Process Of Capital Account Liberalization

In the background of global economic integration，some emerging countries suchas Argentina and Thailand open their capital accounts when financial system were notperfect, the capital markets have not yet mature, lead to external capital impact fragiledomestic capital market, causing their currencies and financial turmoil, whicheventually led to the capital account liberalization unsustainable. China learns fromthese lessons and the successful experience from developed countries, the progressiveliberalization of capital market of reform.The process of capital market’s openness hasa very important significance for China’s market economic system， especially thedevelopment and improvement of the capital market. In order to investigate the impactof capital account liberalization on the stock market，improve the efficiency of China’sstock market，avoid the investment risks come from the rate of return overflowbetween the international markets，and promote the steady development of China’sstock market，It is very necessary to study the spillover effect of the rate of returnbetween China’s stock market and the world’s stock markets.This paper selects the Chinese Shanghai Composite Index，the U.S. Dow JonesIndustrial Index，the UK FTSE，Nikkei Index，Thailand’s SET Index and TaiwanWeighted Index from March1，1992to March1，2012as the study Objects. On thebasis of the openness degree measure of China’s capital market，the sample is dividedinto three stages and Johansen co-integration test，Granger causality test，impulseresponse functions，variance decomposition model are used to study the spillovereffects of the rate of return between China and other top five markets. Through theempirical analysis，the following conclusions are founded:(1) In the first stage，China’s capital account was under control. The spillover effects of the rate of returnbetween the Chinese stock market and the other five markets basically did not exist.China’s stock market was independent of the other top five markets.(2) In the secondstage，although a bold reform of the Chinese capital account was carried out andChina’s stock market began to suffer the rate of return overflow from external market，its impact was relatively small due to the deficit of the accumulation of capital flowsand stocks. The rate of return overflow from external markets did not exist in Chinesestock market.(3) In the third stage， with the barriers to the movement of capitalgradually decreasing，China’s capital market produced a more significant effect of therate of return overflow on external markets，particularly on the Asia-Pacific market.On the basis of the above analysis， this paper presents possible approaches andpolicy recommendations to complete the domestic stock market and promote international co-operation.