The effects of domestic and international news and volatility on integration of Chinese stock markets with international stock markets


EMPIRICAL ECONOMICS, vol.50, no.2, pp.317-360, 2016 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 50 Issue: 2
  • Publication Date: 2016
  • Doi Number: 10.1007/s00181-015-0943-x
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.317-360
  • Keywords: Multivariate GARCH, Smooth transition conditional correlation, Stock markets integration, International portfolio diversification, AUTOREGRESSIVE CONDITIONAL HETEROSKEDASTICITY, EQUITY MARKETS, PRICES, MODELS, US
  • Middle East Technical University Affiliated: Yes


This paper provides a comprehensive and up-to-date analysis of time-varying return co-movements between Chinese stock markets and stock markets in the USA, UK, France and Japan by employing smooth transition conditional correlation (STCC-GARCH) and double smooth transition conditional correlation (DSTCC-GARCH) models with specific emphasis on the role of domestic and international news and volatility. Unlike earlier literature, we reveal that there are noticeable rising trends in conditional correlations among these markets particularly following the financial reforms in China. Moreover, the empirical results of DSTCC-GARCH specifications with time and various volatility measures generally indicate that the correlations increase, not only over time but also during calm periods, suggesting that Chinese stock markets may be safe harbors during global financial crisis.