An Analysis Of Co-movement Between Mainland China, US And Hong Kong Stock Markets

Since China's reform and opening-up, the domestic closed economy system has been gradually opening, and the implementations of a wide range of the open policies have achieved good results. With the implementation of a number of policy about the opening of our country's stock market, such as the QFII system, split-share reform and the QDII program and so on, the relationship between mainland stock market and other stock market has been closer and closer. What's more, Hong Kong, as the world's third largest financial center, functions as a link between China and other countries or regions, and the US stock market, financial center in the international securities market, has also played an important role in mainland China stock market. So with the gradually opening of China's domestic capital market, the change of the co-movement between the stock market in mainland China, US and Hong Kong has gradually been a concern.Based on different perspectives and research methods, this paper combs the relevant literature about the stock market correlation. And then with the basis of theory about the stock market correlation, in order to study the correlation between the stock market in mainland China, US and Hong Kong and its influences, this paper selects daily closing price of Shanghai Composite Index of mainland China, Dow Jones Industrial Average of US and Hang Seng Index of Hong Kong from Jan.3,1995 to Dec.31,2015 as the sample data, the empirical research is divided into three parts:Firstly, this paper separates the sample period into four sub-periods by the first issue of QFII, the US sub-prime crisis in 2007 and the China stock market crash in 2015,and then uses ADF Unit Root Test, Johansen Co-integration Test and Granger Causality Tests to find out the change of correlation and interaction between the stock markets of mainland China, US and Hong Kong among the four stages; Secondly, this paper selects the yield data of day indices above in the whole sample period, uses the DCC-GARCH(1,1) model to gain the dynamic conditional correlation and then study the time-varying correlation among the three stock markets; Thirdly, respectively, this paper selects the dynamic conditional correlation between the stock market in mainland China and US and between the stock market in mainland China and Hong Kong to measures the corresponding co-movement of stock market.According to the empirical analysis, this paper points out that after the import of QFII, the co-integration relations among the three stock markets become stronger and stronger, and as time goes on, the implementation of a wide range of the open policies has led to the gradually opening of China's domestic capital market, the co-movement between the stock market in mainland China, US and Hong Kong has been strengthened. In addition, no significant changes were found in the influence of the trade dependency and the change in interest rate on the co-movement between two stock markets, and the exchange rate volatility, the difference of inflation rate and the difference of GDP growth rate all play an important role in the co-movement between two stock markets, but different influencing factor has different influence, maybe there are some differences in economic environment between the stock market in US and Hong Kong.The contributions of this paper are as follows:Firstly, the data spans a longer period of time, and the data is fresh, so the results are comprehensive; Secondly, this paper combines qualitative analysis and quantitative analysis to study the co-movement between the stock market in mainland China, US and Hong Kong, the conclusion is more persuasive; Thirdly, on the basis of trend analysis in co-movement, this paper analyzes the influence factors of co-movement, the conclusions can be more comprehensive.The deficiencies of this paper lie in:Firstly, the three stock markets include a variety of indices, but this paper only chooses one to represent one stock market, maybe different choices may lead to different results; Secondly, there are many important events in China mainland stock market, this paper only chooses three, so the results are not comprehensive; Thirdly, the influence factors of co-movement between different stock markets are complex and numerous, this paper just lists some of them, the results maybe not comprehensive.