Forecasting Stock Exchange Opening with Foreign Stock Markets: Evidence from the NYSE and the SSE
George L. Ye
Saint Mary's University - Sobey School of Business
June 11, 2011
In this paper we examine the interactions between the U.S. stock market and the Chinese stock market in the scope of market microstructure. In particular, first time in the literature, we examine the forecasting ability of the stock performance in one market to predict the direction of the stock price movement at the opening in the other market. Contrary to existing evidence reported in the literature, we find that after the global financial crisis that occurred in late 2007, stock performance in the New York Stock Exchange (NYSE) has shown significant forecasting ability on the Shanghai Security Exchange (SSE) opening, while the forecasting abilities were insignificant before. That is, the performance in the NYSE now plays a role in the opening price discovery in the SSE. However, the daily rates of returns on the NYSE have shown no forecasting ability to predict the stock price movement after the market opening. Our finding that it is possible to forecast the direction of the stock price movement in Chinese stock market at its next opening a few hours ahead may be valuable for many investors.
Number of Pages in PDF File: 25
Keywords: Emerging Stock Market, Chinese stock market,Stock Price Discovery, Market Microstructure
JEL Classification: G14, G15, G17, G19working papers series
Date posted: June 12, 2011
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