Volatility Spillovers between Chinese and World Equity Markets

36 Pages Posted: 20 Feb 2011 Last revised: 22 Mar 2011

See all articles by Xiangyi Zhou

Xiangyi Zhou

Xi'an Jiaotong University - Jinhe Center for Economic Research

Weijin Zhang

Xi'an Jiaotong University

Jie Zhang

Texas A&M University

Date Written: February 19, 2011

Abstract

We propose measures of the total volatility spillover, the regional volatility spillovers of 11 countries, and the directional volatility spillovers between Chinese and world equity markets from February 1996 to December 2009, based on forecast-error variance decompositions in a generalized vector autoregressive framework given by Diebold and Yilmaz (2010). It is found that: 1) The Chinese stock market was little affected by other equity markets in the sample period. After 2005, the volatility of the Chinese market had a significantly positive impact on other markets; 2) The volatility interactions among the Chinese, Hong Kong and Taiwan markets are more prominent than those among the Chinese, Western and other Asian markets. The volatility spillovers among the Chinese, Japanese and Indian markets are more distinctive than those among the Chinese, US and UK markets; 3) The US market had dominant volatility impacts on other markets during the subprime mortgage crisis. While the other markets were very volatile, driven by the bad news, their huge volatility has been transmitted back to the US market; 4) The major correction of Chinese stock market between February and July 2007 significantly contributed to the volatility surges of other markets. Due to the restriction of foreign investment, the Chinese stock market has not been greatly affected in terms of market volatility during the crisis.

Keywords: China, World Equity Markets, Vector Autoregression, Variance Decomposition, Spillover Index, Financial Crisis

JEL Classification: G15, F36

Suggested Citation

Zhou, Xiangyi and Zhang, Weijin and Zhang, Jie, Volatility Spillovers between Chinese and World Equity Markets (February 19, 2011). Available at SSRN: https://ssrn.com/abstract=1764326 or http://dx.doi.org/10.2139/ssrn.1764326

Xiangyi Zhou (Contact Author)

Xi'an Jiaotong University - Jinhe Center for Economic Research ( email )

Xian Ning West Road No.28
Xi'an, Shaanxi 710049
China

Weijin Zhang

Xi'an Jiaotong University ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Jie Zhang

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

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