Testing for relationships between Shanghai and Shenzhen stock markets: A threshold cointegration perspective |
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Authors: | Xiaoqiang Lin Zhenpeng Tang Fangyu Fei |
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Institution: | 1. Antai College of Economics & Management, Shanghai Jiao Tong University, PR China;2. School of Management, Fuzhou University, PR China;3. Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University, PR China |
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Abstract: | We investigate the relationships between Shanghai and Shenzhen stock market, and reveal the evidence of cross-correlations between the two stock markets. Our main findings show that Shanghai and Shenzhen stock market are cointegrated, and also present the evidence of strong error-correction effect in the short-rate equation, whereas the point estimate for the error-correction term is small and not statistical significance in the long-rate equation. Finally, Shanghai stock market ECT coefficient shows the evidence of long-term equilibrium in the first regime, while in the second regime the coefficient of correction term is larger than that of the first regime, indicating the rate convergence to long-term equilibrium is not uniform. |
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Keywords: | Cointegration Threshold vector error correction model Cross-correlation R/S method |
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