Do Information Transmissions among Stock Markets of Greater China Become Stronger? A Nonlinear Perspective

Abstract

This paper uses linear and nonlinear Granger causality tests to study information transmission among stock markets of Greater China. In sharp contrast to the results disclosed by its linear counterpart, a nonlinear causality test provides evidence of isolated bi-directional causal relations between two Chinese stock markets and between HKSE and TWSE in the earlier period of 1992-1999. The nonlinear causality test further shows that information transmissions have recently been strengthened and Chinese stock markets are well connected with their neighbor markets HKSE and TWSE. In fact, Chinese stock markets are playing a most influential role among the stock markets of Greater China.

Keywords: Granger causality, Nonlinearity, stock market, Greater China