Empirical Evidence of Co-Movements between China and Global Stock Markets

Abstract

This paper investigates the dynamic correlations between Chinese stock return and global markets at both market and sectoral levels. Statistics suggest that stock-return correlations across markets are time-varying and display structural breaks. The evidence indicates that the stock returns of financial sector exhibit the highest correlation across countries among 10 sectors. Low correlations present in Health Cares, Telecommunications, and Utilities sectors. The correlations tied closely with geographic location – the correlation with Hong Kong is highest followed by South Koran, Japan, Europe and US markets. The time-series stock-return correlations are positively correlated with the conditional variance and variance premiums.