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Analysis of Chinese financial markets


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Yan, YH 2008 , 'Analysis of Chinese financial markets', PhD thesis, University of Tasmania.

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This thesis comprises a series of four inter-related essays on the efficiency of Chinese
financial markets, and on incorporating efficient markets into a small macroeconomic
The first essay (Chapter 2) examines the extent of integration of the Shanghai and
Shenzhen stock markets to determine which of these provides the better
representation of share market behaviour in China. The preferred one is applied
throughout the thesis. A test for cointegration of the Shanghai share price index with
seven other international indices is then conducted. The increased extent of the
integration between the representative index and seven selected international indices
indicates increasing efficiency in the overall Chinese share market through time, and
leads to the analytical focus of the second essay (Chapter 3). This focus involves the
convergence of share prices of firms cross-listed on the Shanghai and Hong Kong
exchanges in terms of the law of one price. The results indicate that, in recent times,
firm-level share prices converge to the law of one price. The investigation of financial
market integration is then extended to the bond market in the third essay (Chapter 4)
where exchange rate convergence is examined using the Svensson model of the term
structure of interest rate differentials. The mean reversion property of the exchange
rate, as a feature of the Svensson model, is found in Chinese and US bond markets
and provides complementary evidence of recent integration of Chinese financial
The results of the first three essays establish evidence of well-integrated financial
markets in China, setting the scene for explaining the role of an efficient financial
market in influencing output under a fixed exchange rate. In the final essay (Chapter
5), a model is developed, for this purpose involving the integration of efficient
financial markets into an open-economy framework with perfect capital mobility,
perfect foresight, and a fixed exchange rate. The dynamic behaviour of output, the
exchange rate and the stock price in response to an unanticipated demand shock are
characterised and validated by the simulated scenario of a negative demand shock
occurring in China in 1997. The model is designed to capture the key features of the major dynamic forces shaping the fixed exchange rate regime and the major financial
linkages governing the response of the economy. Articulation of asset market
dynamics for a fixed exchange rate regime represents a major contribution of the

Item Type: Thesis - PhD
Authors/Creators:Yan, YH
Keywords: Finance, Capital market
Copyright Holders: The Author
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Copyright 2008 the Author - The University is continuing to endeavour to trace the copyright owner(s) and in the meantime this item has been reproduced here in good faith. We would be pleased to hear from the copyright owner(s).

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No access or viewing until 21 October 2010. Thesis (PhD)--University of Tasmania, 2008. Includes bibliographical references

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