Impact of major stock markets on China's stock market
ISSN: 0307-4358
Article publication date: 10 May 2023
Issue publication date: 24 October 2023
Abstract
Purpose
The main purpose is to explore the impact of major stock markets on China's market where major markets are represented by former G8 nations (current G7 and Russia).
Design/methodology/approach
The article makes use of: stationarity tests (ADF and PP unit root); long-run correlation tests (Johansen integration involving trace and maximum eigenvalue); impact of G8 markets on China (VECM test); influence of G8 markets on volatility in China's market (variance decomposition analysis) and, effect from shocks in G8 markets on China (impulse response function).
Findings
Using a period of 2009–2019 that avoids detecting linkages caused by interdependencies created by two major international crises, the article offers four major findings. First, except for Germany and Russia, G8 markets have a significant causal influence on China with UK having the greatest. Second, G8 markets are not the major source of short-run fluctuation in China's market but over time exercise a noteworthy collective impact with UK having the greatest impact. Third, there are occasions for international portfolio diversification with China's market providing greater diversification than G8 nations. Fourth, all markets provide a short-run window of abnormal profit.
Research limitations/implications
The indexes used to represent national markets are assumed to be adequate representations.
Practical implications
Short-term abnormal profits exist. Investing in China, compared to G8 countries, offers greater portfolio diversification possibilities.
Social implications
Removal of trade and investment barriers cause greater market integration.
Originality/value
By using recent data, this study reveals that G8 stock markets influence China's market.
Keywords
Citation
Hull, R.M., Habib, A. and Khan, M.A. (2023), "Impact of major stock markets on China's stock market", Managerial Finance, Vol. 49 No. 11, pp. 1706-1721. https://doi.org/10.1108/MF-01-2023-0022
Publisher
:Emerald Publishing Limited
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