The integration of capital markets: Cointegration analysis of the stock market indices among China, Hong Kong, Singapore, Taiwan, Japan, UK and US economies

Abstract

In this paper, we use cointegration analysis and Granger causality technique to test the long-run equilibrium relations and causal relations between China, US, UK, Japan, Hong Kong, Taiwan and Singapore stock markets. The results show that China stock market is segmented globally, but appears integrated within the region before 1997. While, after 1997 the results report that China stock market has cointegration (long-run equilibrium relationship) with all the other six markets at 5% significant level. Our empirical results suggest that Chinese economy has been integrated into the global economy gradually companied by the financial integration into the world capital markets and the significant price co-movements of national stock markets could be related to geographical proximity, partnerships in trade, and cultural similarity.