The dependence structure between Chinese and other major stock markets using extreme values and copulas

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4 Citations (Scopus)

Abstract

This study employs the extreme value theory (EVT) and stochastic copulas to investigate the dependence structure between the Chinese stock market and other major stock markets including the US, Canada, UK, Germany, Japan and Australia. Our research reveals that the dependence between the Chinese stock market and the developed markets is low. Furthermore, our study indicates Chinese stock market has stronger dependence with Asia and Europe than the US. Among all 6 pairs, the dependence between Chinese and US stock markets is the lowest and that between China and Australia is the highest. It is also found that US and UK do not have significant upper tail dependence with Chinese stock market and the dependence between China and Japan is strong but has weakened for the lower tail since 2014. Overall, diversification across all six pairs of stock markets is not effective, though the prospect of diversification across China and Japan has improved.

Original languageEnglish
JournalInternational Review of Economics and Finance
DOIs
Publication statusAccepted/In press - 1 Jan 2018

Fingerprint

Dependence structure
Stock market
Chinese stock market
Copula
Extreme values
Japan
China
Diversification
Asia
Germany
Extreme value theory
Canada
Tail dependence

Keywords

  • Chinese stock market
  • Copula
  • Dependence structure
  • Extreme value theory

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

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AB - This study employs the extreme value theory (EVT) and stochastic copulas to investigate the dependence structure between the Chinese stock market and other major stock markets including the US, Canada, UK, Germany, Japan and Australia. Our research reveals that the dependence between the Chinese stock market and the developed markets is low. Furthermore, our study indicates Chinese stock market has stronger dependence with Asia and Europe than the US. Among all 6 pairs, the dependence between Chinese and US stock markets is the lowest and that between China and Australia is the highest. It is also found that US and UK do not have significant upper tail dependence with Chinese stock market and the dependence between China and Japan is strong but has weakened for the lower tail since 2014. Overall, diversification across all six pairs of stock markets is not effective, though the prospect of diversification across China and Japan has improved.

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