Cointegration between the Chinese and US stock markets

University essay from Lunds universitet/Ekonomisk-historiska institutionen

Abstract: This paper conducts an empirical study on the relationship between the emerging financial market of China and the developed market of the US, both during and after the 2007-2009 financial crisis. Stock indices from the two countries are analysed to examine whether there exist any comovements between the different equity markets. Econometric time series testing of weekly stock values indicate that there is a long term cointegrating relationship during the financial crisis and a short term relationship in both time periods. These results provide Chinese policy makers with vital information for making decisions on future reforms of the Chinese financial market. The understanding of linkage between the stock markets is also important for investors who can use this information to achieve diversification of assets.

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