An Empirical Research on the Conversion of Dependency State and Crisis Contagion among Shanghai, Shenzhen and Hong Kong Stock Markets

Abstract

Abstract:

This paper builds a regime-switching dynamic copula model to characterize the dynamic dependency structure among Shanghai, Shenzhen and Hong Kong stock markets based on their daily index yield data from 1991 to 2015. The results show that there is high dynamic dependence which shows asymmetric, nonlinear and sustainable feature between Shanghai and Shenzhen stock markets. At the same time, there is low dynamic dependence which shows symmetrical and linear feature between Shanghai and Hong Kong stock markets as well as between Shenzhen and Hong Kong stock markets. Two different dependency states, namely high and low dependency, exist among the three stock markets. These state transition probabilities are time-varying. External financial crises significantly enhance dependency level among Shanghai, Shenzhen and Hong Kong stock markets. Such crises drive the correlation among the three stock markets from low dependence status to high dependence status, indicating that there exists crisis contagion.

Key words: Shanghai, Shenzhen and Hong Kong stock markets, dynamic dependence structure, dynamic MS Copula, crisis contagion

Guo Wenwei, Chen Yanling. An Empirical Research on the Conversion of Dependency State and Crisis Contagion among Shanghai, Shenzhen and Hong Kong Stock Markets[J]. , 2017, 29(12): 3-16.

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