Abstract
The objective of this study is to examine the correlation between stock price and exchange rate of China and emerging countries in terms of return and dynamic correlation. The analysis is carried out through basic GARCH (1,1) model allowing for dynamic conditional correlation and dynamic covariance structure. In addition, the impact of stock price returns, exchange rate returns and market capitalizations are considered to explore the integration between China and selected nine countries. The selected nine countries are separated by three categories, which are Asian developed countries, Asian Dragons and Asian emerging countries. We also examine the impact of stock prices for exchange rates and exchange rates for stock prices. The empirical results cannot surely support Phylaktis and Ravazzolo (2005) suggests that stock and exchange rate markets are positively correlation, but stock market of China has integration on stock market of all sample countries, which are separated by Asian developed countries, Asian dragons and Asian emerging countries. In addition, exchange rate of China has integration on exchange rate market of Asian developed countries and Asian Dragons. In addition, the top ten stock of China only has effect on own countries, and it have no effect on other countries.
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