Research On Co-movement Effects Between China And The United States Financial Markets

With the deepening of economic golobalization, the relationshipamong open economies has become closer, and the linkage among theinternational financial markets stronger. As the biggest developing anddeveloped country, China and the United States play an important role inthe global financial market. Therefore, it has practical significance tostudy the co-movement of sino-US financial markets. This paper analyzesthe co-movement change of the financial sub-markets in China and theUnited States in both the pre-crisis and post-crisis period, and putsforward relevant policy recommendations.First of all, this paper describes the evolvement of the co-movementof sino-US financial markets, in which the interactive trade and directinvestment have devoted a lot. Secondly, an empirical analysis isperformed, using SVAR(Structural Vector Auto Regression)model, to testand verify the co-movement of sino-US monetary,stock and foreign exchange market. In the model, three-month U.S. treasury bill rate andChinese three-month inter-bank interest rate are used as the representativeinterest rate for monetary market between the two countries; S&P500andShanghai composite index the proxy as the indicator for the two stockmarkets; the exchange rate of RMB against the U.S. dollar as the foreignexchange market indicator.The result shows that, China’s financial market has more influence onAmerica’s comparing with the pre-crisis phase; however, Americanfinancial market still holds more effect on that in China. In short, theco-moventment of sino-US financial markets strengthens after financialcrisis, and shows asymmetric feauture. There are many reasons: financialcontagion factors, accelerateted pace of opening up of China’s financialmarkets, closer relations between the real economy of China and theUnited States, the changes of the investors’ concept, and convenienttransmission of information. China and developed countries will see anintensifying integration in financial market. Therefore, Chineseauthorities should strengthen financial supervision and establish effective mechanism and risk prevention system; investors should follow up themarket trend on time and make proper investment decision to avoidmarket hazard.