China and the World Equity Markets: A Review of the First Decade

摘要

With more than a decade of Chinese equity markets, we study how variance, covariance, and correlations have developed for these markets and relative to world markets based on the Dynamic Conditional Correlation (DCC) model of Engle (2002). Chinese markets trade A-shares for domestic investors and otherwise identical B-shares for foreign investors. For A-shares, we find that volatility declined over the decade. Relative to world markets, we find no asymmetric volatility in China and less volatility persistence for B-shares. And, contrary to the global trend of increasing cross-country correlations, we find stationary correlations for China. A-share indices never correlated with world markets and B-share indices exhibit low correlation with Western markets and Japan (0-5%) and slightly higher correlation with the other Australasian markets (10-20%). We interpret these findings using Gordon’s growth model.