Prior to further research it is worthwhile to look at the basic summary statis-tics of the stock market returns (see Fig. 1 and Table 2). In the research period
3 US market was chosen as it has the highest capitalization in the world (see Table 1).
4 Weekly data denominated in USD was extracted from EcoWin.
Is the Chinese stock market integrated with the global stock market? 73
the mean returns of A shares are lower than those of B shares. The Chinese stock market can be characterized by the presence of extreme observations. This is re-flected in high maximum and low minimum values as well as high standard devia-tions. These extreme observations have been acknowledged in earlier studies (Gao, 2002). Furthermore, not surprisingly none of the series are normally distributed.
Fig. 1. Time series of weekly returns and prices from 1993 to 2011
Notes: Weekly returns series: D(LN. x); where x refers to the appropriate price index.
-.4
Marta Wiśniewska 74
Table 2 Summary statistics of the weekly stock markets returns, 1993-2011
Obs. Mean Median Max. Min.
Std.
Dev. Skewness Kurtosis J-B SHAA 925 0.058 0.04 40.124 -29.033 4.503 0.683 16.117 6703.146* SHAB 925 0.121 -0.135 20.673 -20.743 4.73 0.269 5.651 281.88* SHEA 925 0.089 0.075 35.964 -32.596 4.635 0.026 13.892 4572.49* SHEB 925 0.151 -0.053 34.81 -38.338 4.928 0.388 13.925 4623.687* NASDAQ 925 0.165 0.474 9.559 -13.809 2.749 -0.681 5.693 350.897*
NYSE 925 0.126 0.31 7.542 -9.826 1.938 -0.566 6.208 446.161* SP500 925 0.165 0.323 8.198 -10.985 2.102 -0.558 6.291 465.44* DowJones 925 0.142 0.347 8.1 -10.604 1.872 -0.501 6.161 423.837*
* p-value <0.05.
Notes: Weekly returns are computed as Rt =[ln(Pt/Pt-1)]*100, where Pt is the price of the index at in-stant t.
Table 3 displays the correlation coefficience of weekly stock market returns.
When comparing results for Panel B and Panel C it is visible that the value for Chinese market displayed in Panel C, are higher than in Panel A. Moreover they also appear to be statistically significant. In Panel A correlation coefficients of SHAA and SHEA with the US market seem to be equal to zero, whereas corre-lations of SHAB and SHEB are low, yet mostly positive and statistically sig-nificant. In Panel B both classes of shares have a low, yet positive and statisti-cally significant correlation with the US market. This gives preliminary evidence in favor of the research hypothesis (H1). The remainder of the paper aims to confirm these results by employing cointegration and Granger causal-ity tests.
Is the Chinese stock market integrated with the global stock market? 75
Table 3 Correlation coefficients of weekly stock market returns
Panel A: 1993-2011
SHAA SHAB SHEA SHEB NASDAQ NYSE SP500 DJ
SHAA 1
SHAB 0.516 1
SHEA 0.855 0.521 1
SHEB 0.521 0.759 0.534 1
NASDAQ 0.041* 0.049* 0.031* 0.079 1
NYSE 0.068 0.134 0.06 0.152 0.788 1
SP500 0.058 0.134 0.052 0.155 0.797 0.965 1
DJ 0.038* 0.115 0.029* 0.129 0.752 0.94 0.931 1
Panel B: 1997-2003
SHAA SHAB SHEA SHEB NASDAQ NYSE SP500 DJ
SHAA 1
SHAB 0.515 1
SHEA 0.949 0.489 1
SHEB 0.514 0.827 0.507 1
NASDAQ `-0.053* `-0.02* `-0.041* 0.005* 1
NYSE `-0.029* 0.09 `-0.015* 0.072* 0.747 1
SP500 `-0.015* 0.132 `-0.003* 0.117 0.735 0.962 1 DJ `-0.025* 0.116 `-0.016* 0.087 0.686 0.955 0.936 1
Panel C: 2005-2011
SHAA SHAB SHEA SHEB NASDAQ NYSE SP500 DJ
SHAA 1
SHAB 0.767 1
SHEA 0.901 0.791 1
SHEB 0.769 0.875 0.761 1
NASDAQ 0.181 0.15 0.114 0.274 1
NYSE 0.23 0.218 0.167 0.332 0.92 1
SP500 0.169 0.166 0.124 0.281 0.944 0.967 1
DJ 0.184 0.172 0.124 0.273 0.92 0.949 0.949 1
* Not statistically significant at 5% significance level.
Prior advancing to Granger causality tests it is necessary to establish the level of integration of the time series in question. Table 4 outlines the results of the ADF tests. Series in levels were found to be non-stationary, whereas series in
Marta Wiśniewska 76
1st differences proved to be stationary. These results are in line with expecta-tions, as I(1) is a common property of financial time series. Furthermore as no cointegration relation has been detected between the series in levels5, Granger causality tests need to be applied to series in 1st differences (i.e. the returns).
Table 4 ADF test for weekly stock market indexes in natural logarithms
Panel A:1997-2003 Panel B: 2005-2011
in levels in 1st differences in levels in 1st differences Constant Trend Constant Trend Constant Trend Constant Trend SHAA -1.927 -1.916 `-6.078* `-6.014* -1.62 -0.962 `-14.221* `-14.308* SHAB -0.878 -1.517 `-10.419* `-7.368* -1.749 -1.485 `-13.259* `-13.296* SHEA -1.982 -1.754 `-6.491* `-6.577* -1.339 -0.72 `-10.324* `-10.425* SHEB -1.271 -2.294 `-11.773* `-11.787* -2.422 -1.641 `-3.09* `-3.219 NASDAQ -1.675 -1.624 `-6.981* `-7.028* -2.158 -2.228 `-15.897* `-15.877* NYSE -2.563 -2.441 `-17.398* `-17.432* -2.334 -2.51 `-3.541* `-3.547* SP500 -2.157 -2.365 `-7.816* `-7.809* -2.272 -2.268 `-3.681* `-3.676* DJ -2.564 -2.418 `-16.629* `-16.643* -2.02 -2.022 `-3.711* `-3.706*
*p-values <0.05
Table 5 presents the results of Granger causality tests both for 1997-2003 (Panel A) and 2005-20011 (Panel B). In Panel A the null hypothesis (H2) that the US market returns doesn’t Granger cause the Chinese market returns can be re-jected in 3 out of 16 cases. At the same time in Panel B the (H2) can be rere-jected in 15 out of 16 cases. The outcome of Panel B reveals that the US stock market returns have an impact on (Granger causes) the Chinese stock market returns.
There is however no evidence that the Chinese stock market returns Granger cause US stock market returns. This one directional causality is the major change between 1997-2003 and 2005-2011. These results support earlier expec-tations that stock market relationships change over time. There is however no evidence to reject the null hypothesis (H1), in contrary it appears the Chinese market slowly becomes more integrated with the world stock market.
5 Detailed results of Johansen cointegration tests for series in natural logarithms can be obtained upon request from the author.
Is the Chinese stock market integrated with the global stock market? 77
Table 5 Granger-causality test for relationship between stock exchanges
Null Hypothesis:
Panel A: 1997-2004 Panel B: 2005-2011 F-Stat. Prob. F-Stat. Prob.
D(LN.SHAA) does not Granger Cause D(LN.NASDAQ) 0.514 0.474 1.533 0.217 D(LN.NASDAQ) does not Granger Cause D(LN.SHAA) 0.002 0.969 7.647 0.006 D(LN.SHAB) does not Granger Cause D(LN.NASDAQ) 0.229 0.632 1.434 0.232 D(LN.NASDAQ) does not Granger Cause D(LN.SHAB) 7.879 0.005 8.963 0.003 D(LN.SHEA) does not Granger Cause D(LN.NASDAQ) 0.242 0.623 0.676 0.412 D(LN.NASDAQ) does not Granger Cause D(LN.SHEA) 0.004 0.947 4.578 0.033 D(LN.SHEB) does not Granger Cause D(LN.NASDAQ) 1.710 0.192 2.694 0.102 D(LN.NASDAQ) does not Granger Cause D(LN.SHEB) 5.711 0.017 12.157 0.001 D(LN.SHAA) does not Granger Cause D(N.LNYSE) 1.522 0.218 1.949 0.164 D(LN.NYSE) does not Granger Cause D(LN.SHAA) 1.380 0.241 8.461 0.004 D(LN.SHAB) does not Granger Cause D(LN.NYSE) 0.026 0.873 1.449 0.230 D(LN.NYSE) does not Granger Cause D(LN.SHAB) 4.255 0.040 8.680 0.003 D(LN.SHEA) does not Granger Cause D(LN.NYSE) 2.308 0.130 0.479 0.490 D(LN.NYSE) does not Granger Cause D(LN.SHEA) 0.747 0.388 5.209 0.023 D(LN.SHEB) does not Granger Cause D(LN.NYSE) 2.339 0.127 2.474 0.117 D(LN.NYSE) does not Granger Cause D(LN.SHEB) 2.088 0.149 13.168 0.000 D(LN.SHAA) does not Granger Cause D(LN.SP500) 2.189 0.140 2.865 0.091 D(LN.SP500) does not Granger Cause D(LN.SHAA) 1.220 0.270 5.870 0.016 D(LN.SHAB) does not Granger Cause D(LN.SP500) 0.000 0.996 2.201 0.139 D(LN.SP500) does not Granger Cause D(LN.SHAB) 2.883 0.091 6.682 0.010 D(LN.SHEA) does not Granger Cause D(LN.SP500) 3.063 0.081 1.277 0.259 D(LN.SP500) does not Granger Cause D(LN.SHEA) 0.565 0.453 3.583 0.059 D(LN.SHEB) does not Granger Cause D(LN.SP500) 1.377 0.241 3.615 0.058 D(LN.SP500) does not Granger Cause D(LN.SHEB) 1.790 0.182 9.525 0.002 D(LN.SHAA) does not Granger Cause D(LN.DJ) 1.357 0.245 2.076 0.151 D(LN.DJ) does not Granger Cause D(LN.SHAA) 1.499 0.222 8.176 0.005 D(LN.SHAB) does not Granger Cause D(LN.DJ) 0.002 0.965 0.983 0.322 D(LN.DJ) does not Granger Cause D(LN.SHAB) 2.839 0.093 9.533 0.002 D(LN.SHEA) does not Granger Cause D(LN.DJ) 2.679 0.103 0.563 0.454 D(LN.DJ) does not Granger Cause D(LN.SHEA) 0.766 0.382 5.813 0.016 D(LN.SHEB) does not Granger Cause D(LN.DJ) 2.032 0.155 2.342 0.127 D(LN.DJ) does not Granger Cause D(LN.SHEB) 1.532 0.217 12.689 0.000
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Conclusions
In recent years China has experienced enormous development and so has the Chinese stock market. Shanghai SE and Shenzhen SE have joined the lead-ing world stock exchanges in terms of market capitalization. At the same time they are greatly regulated and controlled by the government. Following recent government policy to increase the openness of the Chinese stock market, this study aimed to investigate whether in recent years the Chinese stock market has become more connected to the world stock market. In particular, the relation with the US stock market was investigated. The correlation coefficient between the market returns has increased in time. There has been however no change in the level of cointegration of the two markets, although the Granger causality has been positively affected. It has been observed that between 2005-2011 the US stock market returns Granger caused Chinese stock market returns. Therefore even a highly regulated stock market such as the Chinese market, can still be af-fected by the turbulences within the world capital markets.
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Charles A., Darné O. (2009): The random walk hypothesis for Chinese stock markets:
Evidence from variance ratio tests. „Economic Systems” 33.
Chen Z. (2003): Capital markets and legal developments: The China case. „China Eco-nomic Review” 14.
Cheung Y. L., Ouyang Z. and W. Tan (2009): How regulatory changes affect IPO underpricing in China. „China Economic Review” 20.
de Bondt G., Peltonen T.A. and D. Santabarbara (2010): Booms and busts in China’s stock market, „ECB Working Papers” No. 1190, May.
Gao S. (2002): China Stock Market in a Global Perspective, Dow Jones Index, Septem-ber, http://people.stern.nyu.edu/jmei/b40/ChinaIndexCom.pdf, 15 January 2012.
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CZY CHIŃSKI RYNEK AKCJI JEST ZINTEGROWANY Z RYNKAMI ŚWIATOWYMI?
Streszczenie
Praca porusza problem integracji chińskiego rynku akcji z rynkiem światowym.
Jakkolwiek chiński rynek jest mocno regulowany, chińskie giełdy stały się jednymi z największych giełd świata pod względem kapitalizacji. Ponadto badanie ukazuje, że nawet tak mało otwarty rynek jak chiński nie jest obecnie odporny na turbulencje na światowych rynkach kapitałowych.
Sławomir I. Bukowski
Politechnika Radomska im. Kazimierza Pułaskiego