An Empirical Test And Factoring Analysis Of Regional Co-movement Effects For Chinese Stock Market

Chinese stock market has gone through more than20years since its establishment. With the implementation of non-tradable share reform in2005, it develops gradually matured which becomes an important channel for financial resource allocation. But there is an important feature of Chinese stock market that the sector effect and the stock co-movement phenomenon are very significant. The so-called co-movement refers to that the majority of the stock price move in the same direction together during the same period. Although co-movement weakens the function of stock price as a reflection of company’s value, it provides more investment opportunities for investors if they can fully understand its characteristics and causes. Meanwhile, building a diversified portfolio to avoid allocating assets on strong linkage stocks, the investors can reduce the non-systematic risk. Therefore, study on the stock co-movement has a very important practical significance as it can not only help better guide the investors, but can also provide useful suggestions for the stock market managers and policy makers, making it a hot issue in financial academic research field in recent years.Based on the above research purposes, this paper takes all the stocks on Chinese A-share market as research object and studies deeply on China’s31provinces co-movement effects within the region and the co-movement effects between the four provinces in the Pan-Yangtze River Delta region. From the structural point of view, this paper systematically reviewed the research achievements of both Chinese and foreign scholars in market co-movement, industries co-movement and regional co-movement and elaborated relevant theories about the stock co-movement. Then we investigated the existence, changes and factors of regional co-movement effects from the aspects of both co-movement within the region and co-movement between regions. In the part of co-movement within the region, excluding the special period during the2008financial crisis, we investigated China’s31provinces’regional stock co-movement effects for periods of prior-crisis and post-crisis. The empirical results show that except Guizhou Province, there are significant co-movement phenomenon in other30provinces and the extent of co-movement of majority provinces are weakened after the financial crisis. In the part of co-movement strength factors analysis, we find that regional per capita GDP, regional capitalization level and the company’s institutional ownership proportion, the total assets of margin, company size are all inversely with the strength of the co-movement. In the study of inter-regional stock co-movement effects, we select four provinces in the Pan-Yangtze River Delta region that is Shanghai, Anhui, Jiangsu and Zhejiang as the research object. Using the correlation coefficient, co-integration test, Granger causality test methods, the empirical results suggest that there is a significant two-way co-movement between Anhui and Zhejiang and there is a Jiangsu-to-Anhui single co-movement between Jiangsu and Anhui. But for other provinces, there is not significant co-movement relationship. Finally, we summarizes all the conclusions of this paper and provides some suggestion for Chinese stock investors, regulators and the policy-makers based on above research conclusions.