International Transmission of Stock Market Movements within the Great China Economic Area

Abstract

Using a vector autoregression model. This paper examine the transmission mechanism of daily rates of return of the stock markets in the Great China Economic Area (Taiwan, Hong Kong, Singapore, Shenzhen and Shanghai), together with U.S. and Japan markets during the period of May 26, 1995 through June 20, 1997, The results suggest that U.S. and Japan markets are the most influential ones, while Singapore is more like a follower. It also appears that Hong Kong is the most interactive market, however Taiwan is the exogenous. As matter of course, the Mainland China stock markets (Shenzhen and Shanghai) are interactive to each other most closely. From the pattern of dynamic responses of each of the seven markets to shocks in a particular market, it suggests that there isn't inconsistency with the notion of informationally efficient international stock markets in the Great China Economic Area.