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Asia-Pacific Financial Markets

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23-01-2018

China, Japan and the US Stock Markets and the Global Financial Crisis

Author: Yan Zhang

Published in: Asia-Pacific Financial Markets | Issue 1/2018

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Abstract

In this paper, while focusing on the impact that the global financial crisis had on the stock markets of China, Japan, and the United States, the stock-price volatilities and linkage between these three countries are analyzed. In addition, the relationships between macroeconomic variables (real-economy variables and monetary-policy variables) and stock price volatility in each country are investigated. The estimation results of the EGARCH model revealed that although China’s stock price volatility was far greater than those of Japanese and US stock prices, China was less affected by the global financial crisis in 2007 than Japan and the United States. For China, stock price volatility was greater in the early 1990s, shortly after the stock market had been established, than in 2007 when the global financial crisis occurred. Furthermore, it has been revealed that the linkage of Chinese, Japanese, and US stock prices has increased since the global financial crisis. Moreover, Granger causality testing revealed China’s real-economy variables and monetary-policy variables do not affect China’s stock price volatility.

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Refer to the World Federation of Exchanges for market capitalization.

Refer to the IMF database for GDP.

On 27 February 2007, the Shanghai Stock Exchange Composite Index (SSE Composite Index) fell 268 points (8.8%) on the previous day, the biggest decline in its history.

Refer to Zhang (2011, 2012).

Tsutsui and Hirayama (2005) discussed three possible causes of international stock price linkage: (1) global common shocks, (2) portfolio adjustments by institutional investors, and (3) the importance of news on stock price crashes.

Refer to Wang (2010).

The data are from Mondays to Fridays.

BNP Paribas, a bank major company in France, froze the subsidiary fund due to the US subprime loan problem on 15 August 2007, so the subprime loan problem came up.

The time difference between China and Japan is 1 h.

The time difference between the eastern US and Japan is 14 h, and it is 1 h less when Daylight Saving Time is in force.

It indicates the autoregressive-exponential generalized autoregressive conditional heteroskedasticity (AR-EGARCH) model.

The maximum lag is set equal to 3.

Var(JAPAN), Var(CHINA) and Var(US) indicate the variance of Japan, China and the US, respectively. Cov(JAPAN, CHINA), Cov(JAPAN, US), and Cov(CHINA, US) indicate the covariance between Japanese and Chinese stock prices, Japanese and the US stock prices, and Chinese and the US stock prices, respectively.

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Here, ***, **, and * show that the null hypothesis proposing that unit roots exist is rejected at the significance level of 1 , 5 , and 10 %, respectively.

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Title: China, Japan and the US Stock Markets and the Global Financial Crisis
Author: Yan Zhang
Publication date: 23-01-2018
Publisher: Springer Japan
Published in: Asia-Pacific Financial Markets / Issue 1/2018
Print ISSN: 1387-2834
Electronic ISSN: 1573-6946
DOI: https://doi.org/10.1007/s10690-018-9237-6