Can the US stock market be Shanghaied?

摘要

Purpose - The purpose of this paper is to examine the relationship between the US and China stockrnmarkets between 2000 and 2007. This study attempts to categorize the event on February 27, 2007,rni.e. 9 per cent plunge in Shanghai stock market followed by the $1.5 trillion global market shake out,rnas irrational, i.e. herd mentality.rnDesign/methodology/approach - To test for this relationship, the Morgan Stanley CapitalrnInternational daily price index data was collected from April 15, 2002 to April 12, 2007. Daily DowrnJones Industrial Average (DJIA), Nikkei 225 (Nikkei), Hang Seng Index, and the Shanghai StockrnExchange Composite Index (SSECI) were collected from finance.yahoo.com from January 1, 2000 untilrnApril 3, 2007. The running beta and correlation coefficients, defined as the cumulative coefficients, arernused to determine the co-movement of the SSECI and DJIA.rnFindings - The strength of the relationship between the US and China stock markets hasrnsignificantly increased since 2005, maybe attributed to China's policy change in 2005 to move towardrna more free market economy. Because of the unique characteristics of China's stock market, it is hardrnto conclude that the $1.5 trillion global market shake out was ignited by the 9 per cent plunge in thernShanghai stock market on February 27, 2007.rnResearch limitations/implications - China's economic reform is unique since the countryrnfollowed no blue print for the economic institutions to model after and policies were adopted throughrnexperimentation. Fueled by its fast growing economy (10.4 per cent in 2005 and 10.7 per cent in 2006),rnusing past patterns or trends to predict the future of China's financial market requires furtherrnresearch as its stock market emerges. Research in this area requires more observations as China'srnstock market grows and becomes more transparent.rnPractical implications - Results here suggest that the strength of the relationship between the USrnand China stock markets has significantly increased since 2005 and that China's 2005 policy movesrntoward a more free market economy are most likely responsible.rnOriginality/value - A better understanding of the influence of China's emerging stock market onrnthe global stock market offers significant value to portfolio managers worldwide.