Scandinavian Working Papers in Economics

Working Paper Series,
Stockholm School of Economics, China Economic Research Center

No 2009-5: AN ANALYSIS OF DYNAMIC RISK IN THE GREATER CHINA EQUITY MARKETS

Anders C. Johansson ()
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Anders C. Johansson: China Economic Research Center, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: This study looks at the time-varying nature of systematic risk in the Greater China equity markets. The Shanghai and Shenzhen markets both have a low average systematic risk when measured against the world market. The short outbursts in systematic risk for these two markets seem to be directly related to policy shifts. The Hong Kong and Taiwan markets are more integrated with world markets and they show signs of large variations in systematic risk over time. Furthermore, conditional betas in the Shanghai and Shenzhen markets are stationary, while the Hong Kong and Taiwan betas are integrated of order one. In addition, long memory tests show that all four markets exhibit a long-run dependence in their conditional betas. While the two mainland China market betas are covariance stationary, the Hong Kong and Taiwan betas are not.

Keywords: China; Taiwan; Hong Kong; time-varying beta; GARCH; unit roots; long memory

JEL-codes: C32; G12; G15

33 pages, March 1, 2009

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