Financial liberalization and cross-border market integration: Evidence from China's stock market

Abstract

Using the weak-form measure, this paper derives a normalized index to study the impact of China's financial liberalization policies on its stock market integration with the rest of the world during 2000–2015. It reveals that the Chinese stock markets in general have become more integrated with the world markets irrespective of significant fluctuations. In particular, it is found that QFII, QDII and RQFII have consistent and positive effects on market integration but other policy reforms act negatively. Some de jure policy reforms, such as the RMB exchange rate liberalization, are found to have varying effects depending on other market conditions.