Essays on Segmentation of Chinese Stock Markets: Nonlinear Analyses

Abstract

This thesis adopts a MS-GARCH, FIVECM-BEKK and nonlinear Granger causality test to study Chinese segmented stock markets. The first essay finds the differences in volatility switching behaviors of A- and B- share markets and volatility linkage asymmetry among them. The second essay shows A-, B- and H- markets are fractionally cointegrated. A-share markets have the strongest power in the long run. The new policy allowing the purchase of B shares by domestic residents accelerates the market integration of A- with the B-(H-) share market. The third essay adopts linear and nonlinear causality tests to investigate the change in lead-lag relation among A- and B- markets caused by the above policy. It finds stronger bi-directional causal relationship between two A-share markets and between two B-share markets after the implementation of the policy. Furthermore, A-share markets tend to lead their B-share counterparts since the implementation of the new policy.