Correlation Analysis of Three Stock Markets - Shanghai, Shenzhen, and Hong Kong (original) (raw)

2016, International Journal of u- and e- Service, Science and Technology

The volatility of financial markets and the emergence of financial crisis in recent years have made the financial markets' correlation analysis to become the focus of researchers worldwide. In this paper we use GARCH model to analyze data of Shanghai composite index, Shenzhen component index, and Hong Kong index on the day's closing prices for the period January 1, 2005 to December 31, 2012. During this study we a) explore the correlation in between the said three stock markets and the influences that each market has on the others, b) observe the basic statistical characteristic analysis of the return and unit root stationary test of yield sequence, and analyze three cities tertian yield change of cause and effect using GRANGER causality test, and c) perform the parameter estimation, modeling, and fitting of GARCH model. We find that indices of said three stock markets are correlated. This study concludes that GARCH(1, 1)-GED model fits all the three stock markets better. The findings of this study may be helpful for the investors in their investment decisions in relevant markets.