Tests for the Transmission Mechanism of Stock Market Volatility between China and U.S during Subprime Crisis

The paper studies the dynamic correlation between China's and the U.S stock markets prior and posterior to the Sub prime Crisis, 2007. By incorporating the problem of time-difference into our empirical study, we analyze the possibly existing transmission mechanism between these two markets in virtue of EDCC-GARCH model. We concludes that EDCC-GARCH model well-depicts the relationships between China's and American stock market. From the dynamic correlation coefficients from 2005 to 2010, we can see that the relationship between China's and the U.S. stock markets becomes more stable as the development of China's financial market continues.