Regulatory Changes, Market Integration and Spill-Over Effects in the Chinese A, B and Hong Kong Equity Markets

Abstract

We document the changes in dynamic stochastic structure of the various industrial sectors of the Chinese A, B share markets and the Hong Kong share markets. We utilize a robustly estimated VECM-MV-GARCH model to test for possible co-integrating vectors between the market segmentations pre and post deregulation of the Chinese B share market. Our results suggest that before deregulation there is weak evidence of co-integration between the A and B share markets however, post deregulation the situation changes and the segments appear to be significantly co-integrated. MV-GARCH results suggest that the conditional correlations of market/sector shocks also increase significantly over the sample period.

Keywords: Chinese Equity Markets, Segmentation, Co-integration, Spill-over

JEL Classification: G12, G14, G15, G18, C32