Capital Market Liberalization and Equity Market Interdependence

Abstract

This paper uses tests drawn from the literature on financial market contagion measured by changes in higher-order comoments to establish the patterns in the interdependence between equity markets in Shanghai and Shenzhen with Hong Kong as mainland China liberalized their capital market. On the announcement of the opening of the Shanghai market correlations rise, but subside by the launch. Following the launch changes in coskewness, cokurtosis and covolatility emerge. The liberalization process is complete by mid-September 2016.