China’s growing influence and risk in Asia–Pacific stock markets: evidence from spillover effects and market integration

Abstract

This study examines China’s influence in the Asia–Pacific stock markets by focusing on spillover effects and market integration and employs how the financial crises and financial liberalization affect the relationship among these markets. Based on the series of studies of Diebold and Yilmaz (2009, 2012, 2015), this study employs the generalized vector autoregressive framework to examine the spillover effects among the main Asia–Pacific stock markets. The multifactor R-squared measure proposed by Pukthuanthong and Roll (2009) is employed to examine the market integration of Chinese stock market. The results indicate that spillover effects and market integration tend to increase, indicating that China stock market is playing a more important role in the Asia–Pacific stock markets. This study provides more evidence that financial crises and financial liberalization can strengthen spillover effects and market integration.