Spillovers of the U.S. Subprime Financial Turmoil to Mainland China and Hong Kong Sar: Evidence from Stock Markets

43 Pages Posted: 19 Aug 2009

See all articles by Tao Sun

Tao Sun

International Monetary Fund (IMF)

Xiaojing Zhang

Chinese Academy of Social Sciences (CASS)

Date Written: August 2009

Abstract

This paper focuses on evidence from stock markets as it investigates the spillovers from the United States to mainland China and Hong Kong SAR during the subprime crisis. Using both univariate and multivariate GARCH models, this paper finds that China's stock market is not immune to the financial crisis, as evidenced by the price and volatility spillovers from the United States. In addition, HK's equity returns have exhibited more significant price and volatility spillovers from the United States than China's returns, and 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. Moreover, 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. Finally, as expected, the conditional correlation between China and HK has outweighed their conditional correlations with the United States, echoing increasing financial integration between China and HK.

Keywords: Asset prices, Capital markets, China, People's Republic of, Credit risk, Economic integration, Economic models, External shocks, Financial crisis, Financial sector, Hong Kong Special Administrative Region of China, Spillovers, Stock markets, Stock prices, United States

Suggested Citation

Sun, Tao and Zhang, Xiaojing, Spillovers of the U.S. Subprime Financial Turmoil to Mainland China and Hong Kong Sar: Evidence from Stock Markets (August 2009). IMF Working Paper No. 09/166, Available at SSRN: https://ssrn.com/abstract=1457589

Tao Sun

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Xiaojing Zhang

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

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