Spillovers of the U.S. Subprime Financial Turmoil to Mainland China and Hong Kong SAR: Evidence from Stock Markets
IMF Working Papers, August 1, 2009
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- Spillovers of the U.S. Subprime Financial Turmoil to Mainland China and Hong Kong SAR: Evidence from Stock Markets
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Bibliographic details
- Authors: Xiaojing Zhang, Tao Sun
- Published: August 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873139.001
Overview and metadata
- Authors: Xiaojing Zhang, Tao Sun
- Publication date: August 1, 2009
- Series: Working Paper No. 2009/166
- Issue: 166
- Volume: 2009
- Pages: 42
- DOI: https://doi.org/10.5089/9781451873139.001
- Stock No: WPIEA2009166
- ISBN: 9781451873139
- ISSN: 1018-5941
- Subjects: Asset prices, Financial integration, Spillovers, Stock markets, Stocks
- Keywords: Bloomberg L.P., China, index, WP
Research question and methodology
- Focus: Investigates spillovers from the United States to mainland China and Hong Kong SAR during the subprime crisis using evidence from stock markets.
- Methods used:
- Univariate GARCH models
- Multivariate GARCH models
Key findings
- General spillovers
- China's stock market is not immune to the financial crisis, evidenced by price and volatility spillovers from the United States.
- Hong Kong versus China
- HK's equity returns have exhibited more significant price and volatility spillovers from the United States than China's returns.
- Past volatility shocks in the United States have a more persistent effect on future volatility in HK than in China, reflecting HK's role as an international financial center.
- Persistence and origin effects
- The impact of the volatility from the United States on China's stock markets has been more persistent than that from HK, due mainly to the United States as the origin of the subprime crisis.
- Correlations and integration
- The conditional correlation between China and HK has outweighed their conditional correlations with the United States, echoing increasing financial integration between China and HK.
Interpretations and implications
- Financial integration: Evidence supports increasing financial integration between mainland China and Hong Kong SAR, as shown by stronger China–HK conditional correlations relative to China–US and HK–US correlations.
- Role of financial centers: Hong Kong SAR's greater sensitivity and persistence of U.S. volatility spillovers are consistent with its function as an international financial center.
- Source dynamics: The United States, as the origin of the subprime crisis, exerts persistent volatility effects on both HK and China, with differing persistence patterns across markets.
IMF Working Paper No. 2009/166 — Xiaojing Zhang and Tao Sun, August 1, 2009