Shanghai Stock Exchange Composite Index and Bank Stock Prices in China: A Causality Analysis
University of Nottingham Research Paper No. 2008/25
30 Pages Posted: 29 Jul 2008
Date Written: July 29, 2008
Abstract
This paper analyzes empirically the relationship between the Shanghai Stock Exchange (SSE) Composite Index and the indexes of 10 Chinese listed banks to test whether the listing of these banks had played a role in leading the Chinese stock market. Using daily prices from 1 June 2006 to 15 November 2007, we applied the Granger causality test and found that a uni-directional causality relationship existed either way between most bank stock prices and the market index while the bi-directional relationship only identified among five of the ten banks. This research finding is in part consistent with previous studies showing that stock markets in great China region are integrated and are strongly influenced by the psychological factors of investors. In the following co-integration test, both AEG and Johansen's methods concluded a long-run stable equilibrium relationship between majority of the banking stock prices and the SSE Composite Index.
Keywords: Shanghai Stock Exchange, VAR, Johansen co-integration tests, Granger causality tests
JEL Classification: G21, G14, C53
Suggested Citation: Suggested Citation
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