Mean, Volatility Spillover and Time-varying Conditional Dependence in Chinese Stock Markets

This paper adopts a two-stage bivariate GARCH model to analyze the mean and volatility spillovers and time-varying conditional dependence between A and B shares in the China stock market. Impacts of US and Hong Kong on China market are also examined. We find that in the Shanghai exchange where most state-owned big companies are listed, B shares trading is more influential in the information transmission while in the Shenzhen exchange with a smaller and less-liquid market, the direction of the spillover effect reverses. We also find that there exist some time-varying dependence patterns between A and B shares in both Shanghai and Shenzhen exchanges. In addition, there is an upward trend of conditional correlation in both A and B shares after 2002. The evolution of conditional dependence is closely linked to China’s government intervene policies on its stock market. In addition, our findings reveal that Hong Kong, as a neighbor of mainland China’s economy, is more influential than the US on the Shanghai and Shenzhen stock exchanges