Abstract
Employing the tools of multifractal detrended cross-correlation analysis (MF-DCCA) and Diebold–Yilmaz spillover index (D.Y. spillover index), we examine the effect that the foreign investors have on the cross-correlations between the two-segment stock markets, that are the accessible and the inaccessible stock markets, and the other ten respective stock markets. The shares cross-listed by the same corporates on both the A-share and H-share stock markets of China serve as the best sample to compile the two stock indices, which stands for the inaccessible stock market (AHA) and the accessible stock market (AHH), respectively. Empirical results show that the cross-correlations between the two-segment stock markets and the other ten pairs are multifractal, the multifractal strength of cross-correlations is stronger in AHH than AHA, and the intensified growth of the multifractal cross-correlations in AHA can be seen as the increasing of the openness in the inaccessible market. The empirical result of D.Y. spillover index is consistent with the multifractal analysis above, and another interesting finding is that among the selected markets, the three markets with the strongest spillover effects with AHA and AHH are Taiwan, South Korea, and Singapore, respectively, and the weakest one is Australia during the sample scenarios.
Highlights
Complexity have decisive effects on comovements [6]
As for the question mentioned in the study by Zhou [59], finite size effects in time series may cause the strong multifractal of time series and are amplified by memory effects in series [58], which may have an effect on the credibility of our research to reach a conclusion of the effect of foreign investors on the cross-correlations between different stock markets. us, to further discuss and verify the effect that the foreign investor have on the correlations between stock markets, we employ the tool of Diebold–Yilmaz spillover index to investigate the particular relations between each market
We investigated the effect that the foreign investors have on the cross-correlations between different stock markets from the aspect of the segment stock market, and the methodologies of the multifractal detrended crosscorrelation analysis (MF-DCCA) and Diebold–Yilmaz spillover index we employed confirm the consistent conclusion that the foreign investors enhance the crosscorrelations between different markets. e unique feature of the segment stock market of the A-share and H-share markets makes China’s stock market the suitable and perfect sample to be utilized to conduct our research
Summary
Complexity have decisive effects on comovements [6]. King and Wadhwani argued that most of the correlations in return are attributable to industry effects [7]. More and more empirical results supporting the latter interpretation emerged which argue that transactions of investors strengthen the correlations between stock markets. Some studies analyze such subject based on the theory of the wealth effect. In the most recent article closest to our research, Songsong Li and Nan Xu et al investigated the effect of international investors on the multifractal property in A-share and H-share markets in China, but there is no further exploration about the cross-correlation with the global stock market [26]. The previous studies paid close attention to the cross-correlations during the crisis period, while our study concentrates on the noncrisis period
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