Scandinavian Working Papers in Economics

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

No 2009-10: CHINA'S FINANCIAL MARKET INTEGRATION WITH THE WORLD

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

Abstract: It is commonly argued that China's financial markets are effectively insulated from the rest of the world. To see if this is true and to better understand China's financial development, we analyze China's integration with major financial markets. Using conditional copulas, we show that China has experienced an increasing level of integration with several major financial markets during the last decade, even though the country's financial markets are commonly seen as being insulated. Furthermore, the level of integration has increased with several major markets during the current financial crisis. The results and possible reasons for the increasing integration are analyzed and the implications for policymakers and market participants are discussed.

Keywords: China; financial market integration; codependence; copula

JEL-codes: F30; G15

27 pages, June 1, 2009

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