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An Empirical Investigation of Cojump between China and U.S.’s Stock Markets

Author: YingZuo
Tutor: ZhangBing
School: Nanjing University
Course: Management Science and Engineering
Keywords: Cojump nonparametric test contagion mechanism
CLC: F832.51;F224
Type: Master's thesis
Year: 2011
Downloads: 126
Quote: 0
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Abstract


Along with the economic and financial liberalization, the correlations of global stock markets are strengthening. A change in an national financial market can cause the reaction of other countries. Especially in crises period, a country which has superpower in economic and finance area, such as U.S., could influence the trend of stock market of other countries. Financial asset price is a complicated process. It is a well-established stylized fact that the distributions of returns are non-normal. In particular, return distribution appear to be leptokurtic, or have fat tails. An alternative approach to capture such features has been to add a jump process, which was first suggested by Merton (1976). Jump is a discontinuous change in price. A cojump is said to occur between two or more securities if a jump is detected during the same intraday interval for those securities. Identifying the cojump between countries is beneficial to portfolio and risk management. Regulatory authority can design financial policy according to it.This paper studies the cojump between China and U.S.’s stock markets. We use Dow Jones Industrial Average Index, Shanghai Stock Exchange Composite Index and industry index as object. The samples range from January 5,2000 to March 11,2011. The paper uses three kinds of nonparametric test to detecting the cojump. Considering the U.S.’s stock market has leading position in international markets, we test the China index closed returns as well as night returns. The results confirmed the existence of cojump between the two stock markets, which are occurred more frequently after the subprime crisis in 2007. Furthermore, the night returns cojumps are more than closed returns. Investigating the related market information, we summary the four reasons as follows:sino-us trade spillover effect; Sino-us financial spillover effect; The United States financial hegemony influence; Net contagion effect.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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