Chinese and World Equity Markets: A Review of the Volatilities and Correlations in the First Fifteen Years

39 Pages Posted: 1 Nov 2008 Last revised: 13 Mar 2009

See all articles by Kuan-Pin Lin

Kuan-Pin Lin

affiliation not provided to SSRN

Albert J. Menkveld

VU Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Zhishu Yang

Tsinghua University - School of Economics & Management

Date Written: October 31, 2008

Abstract

After more than fifteen years of Chinese equity markets, we study how variance, covariance, and correlations have developed in these markets relative to world markets, based on the dynamic conditional correlation (DCC) model of Engle (2002). Chinese markets offer A-shares to domestic investors and otherwise identical B-shares to foreign investors. We find that the volatility of A-shares has declined over the past decade. We find no asymmetric volatility relative to world markets in China. Contrary to the global trend of increasing cross-country correlations, we find stationary correlations for China. A-share indices have never been correlated with world markets, and B-share indices exhibit a low degree of correlation with Western markets (0-5%) and a slightly higher degree of correlation with other Asian markets (10-20%). We interpret these findings using Gordon's growth model.

Keywords: China; World Equity Markets, Dynamic Conditional Correlation

JEL Classification: F5, F36, G15

Suggested Citation

Lin, Kuan-Pin and Menkveld, Albert J. and Yang, Zhishu, Chinese and World Equity Markets: A Review of the Volatilities and Correlations in the First Fifteen Years (October 31, 2008). China Economic Review, Vol. 20, No. 1, 2009. Available at SSRN: https://ssrn.com/abstract=1292709

Kuan-Pin Lin

affiliation not provided to SSRN ( email )

Albert J. Menkveld

VU Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Zhishu Yang (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

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