Does Trading Volume Contain Information to Predict Stock Returns? Evidence from China's Stock Markets

This paper examines empirical contemporaneous and causal relationships between trading volume, stock returns and return volatility in China's four stock exchanges and across these markets. We find that trading volume does not Granger-cause stock market returns on each of the markets. As for the cross-market causal relationship in China's stock markets, there is evidence of a feedback relationship in returns between Shanghai A and Shenzhen B stocks, and between Shanghai B and Shenzhen B stocks. Shanghai B return helps predict the return of Shenzhen A stocks. Shanghai A volume Granger-causes return of Shenzhen B. Shenzhen B volume helps predict the return of Shanghai B stocks. This paper also investigates the causal relationship among these three variables between China's stock markets and the US stock market and between China and Hong Kong. We find that US return helps predict returns of Shanghai A and Shanghai B stocks. US and Hong Kong volumes do not Granger-cause either return or volatility in China's stock markets. In short, information contained in returns, volatility, and volume from financial markets in the US and Hong Kong has very weak predictive power for Chinese financial market variables.     

Dynamic Modeling of Tail Risk: Applications to China, Hong Kong and Other Asian Markets

In this paper, we study the extreme dependence between the markets in Hong Kong, Shanghai, Shenzhen, Taiwan and Singapore. The tail dependence coefficient (TDC), which measures how likely financial returns move together in extreme market conditions, is modeled dynamically using the Multivariate Generalized Autoregressive Conditional Heteroscedasticity model with the time-varying correlation matrix of Tse and Tsui (Journal of Business & Economic Statistics, 20(3):351–363, 2002). The time paths of the TDC indicate that Hong Kong stocks had the highest extreme dependence during the Asian financial crisis and their TDCs have followed an increasing trend since 2006. The results in this paper also show that the TDC pattern of Singapore with the other markets is very similar to the TDC pattern of Hong Kong with the other markets. An increasing trend in the extreme dependence between Shanghai A Share Index and Shanghai B Share Index and between the Hang Seng Index and the Hong Kong China Enterprise Index is observed from 2002 to 2007. A substantial rise in the TDC between Shenzhen A Share Index and Shenzhen B Share Index was recorded after the China market reforms in 2005. Our TDC modeling with Asian market data provides evidence that Asian markets are becoming integrated and their extreme co-movements during financial turmoil are becoming stronger.     

上海和香港两地股市联动性研究--基于GARCH模型的分析

本文基于经济基础假说和市场传染假说两大基础理论,将股票收益率分解为开盘收益率和收盘收益率,运用GARCH．M模型研究了上海股市和香港股市之间的联动关系。结果显示,两大股市存在相互影响的联动关系,但是上海对香港股市的影响要强于香港对上海股市的影响,反映出两地之间的紧密经济关系及大陆对香港地区经济影响日益增强的现实。     

Testing financial contagion on heteroskedastic asset returns in time-varying conditional correlation

We suggest that there is a significant relationship between cross-market comovement and time varying volatility. The time-varying component of cross-market dependence is attributed to the intertemporal risk-return adjustment by rational, risk-averse investors who systematically revise their expectation in response to changing volatility. To reflect the time-varying component of cross-market dependence, we propose a time-varying correlation test for contagion. Our results show that out of the countries reporting contagion evidence under the constant correlation test, none of the countries exhibits contagion evidence from the 1997 Asian crisis. We conclude that a high level of cross-market correlation during a crisis reported as contagion evidence under the standard constant correlation test is mostly due to the high level of cross-market co-movement resulting from the intertemporal risk-return adjustment.     

香港股市与内地股市的联动性研究

本文分3个阶段考察了香港回归以来,香港股市和内地股市之间的联动关系及其变化。协整分析表明,香港股市和内地股市之间存在长期的均衡关系,这种均衡关系在内地资本市场实行股权分置改革后更趋于稳定。Granger因果检验表明,香港回归以来香港股市和内地股市之间的引导关系在经历B股开放和股权分置改革后发生了变化。脉冲响应函数分析从动态的角度进一步验证了香港股市和内地股市之间的引导关系及其变化,并深入分析了单个变量的波动或冲击对其自身及另一变量的影响程度。     

股票市场开放与企业投资效率——基于“沪港通”的准自然实验

资本市场的持续对外开放是党的十九大强调的重要举措。本文基于沪港通开通这一准自然实验,检验了股票市场开放对企业投资效率的影响。结果发现:沪港通的开启促进了标的公司投资效率的提高,这一影响主要体现在信息环境不透明、治理水平低的公司;机制分析发现,沪港通开启后,公司信息质量的提高和分析师预测准确度的增加是股票市场开放影响标的公司投资效率的重要渠道;最终标的公司在沪港通开通后经营业绩也得到提升。本文结论表明,股票市场开放改善了公司的投资效率,提高了对实体经济的服务能力,这对党的十九大提出的“深化资本市场对外开放”和“金融服务实体经济”系列改革有重要启示。     

Market segmentation and price differentials between A shares and H shares in the Chinese stock markets

We find that the risk premiums associated with the Hong Kong and mainland Chinese markets in a two-factor model successfully explain the cross section of returns on the A and H shares. Discounts of H-share prices relative to A-share prices are related to the contemporaneous movements of the H-share local market index relative to the A-share local market index, especially during the period of the Asian financial crisis, as well as the spread of savings rates between Hong Kong and mainland China. The evidence suggests that the risk premiums associated with the segmented A-share and H-share markets exert crucial impacts on the price differentials between the two classes of shares.     

Does the US-China trade war affect co-movements between US and Chinese stock markets?

This paper investigates the impact of the US-China Trade War on co-movements between US and Chinese stock markets. It particularly examines the time-varying stock market co-movement between the United States and China at market level, as well as at sector level, over the period from 3rd January 2017 to 23rd January 2020. The ‘event study’ analysis is employed to investigate the effect of US-China trade disputes news on co-movement dynamics, and the news announcement effects before and after the official start of the US-China Trade War (regarded as 6th July 2018) are examined separately in light of this phenomenon. We also identify structural breaks and spillover patterns of cross-market co-movements during different phases. The results indicate that co-movements amongst mainland China, Hong Kong and US stock markets are positively affected by news releases and, after 6th July 2018, are enhanced significantly. More precisely, there is also empirical evidence of positive announcement effects in stock market co-movements between the US and mainland China in specific sectors (particularly, Industrials and Information Technology). For international investors, this evidence suggests that the US-China Trade War has reduced the benefit of portfolio diversification in managing risk.     

Nonlinear interdependence of the Chinese stock markets

The methodologies and assumptions in financial integration studies are problematic and may lead to spurious empirical results. Using surrogate data analysis and the mutual prediction method of testing for nonlinear interdependence, it is feasible for an analyst, with a scant knowledge of the underlying dynamics of two dynamical systems, to show whether or not the systems are interdependent. This study applies these techniques in testing for nonlinear interdependence of three Chinese stock markets: Shanghai, Shenzhen, and Hong Kong. The empirical results of the present study indicate that the stock market series are nonlinear and that the Chinese stock exchanges are nonlinearly interdependent. Specifically, the evidence indicates that Shanghai and Shenzhen markets are bi-directionally interdependent, while Shanghai and Hong Kong as well as Shenzhen and Hong Kong markets are unidirectionally interdependent, with the direction of interdependence going from the mainland's markets to the Hong Kong market.     

Are stock market crises contagious? The role of crisis definitions

Financial contagion studies generally examine whether co-movement between markets increases during a crisis. We use a flexible co-movement measure to examine how conclusions of such analyses depend on the sample chosen as the ‘crisis’. To this end, we analyse stock market co-movement during the 1997 Asian crisis and the 2007 global financial crisis for all possible source countries and for all possible time periods or extreme return quantiles. This way we account for the main crisis dating approaches adopted in the literature. Our results suggest there is no clear relationship between excess co-movement and commonly used crisis samples.     

在岸人民币市场与香港离岸人民币市场联动关系的实证研究

作为国际金融中心,香港为内地的发展提供了举足轻重的金融服务。近年来,我国政府力推人民币国际化,具有完备金融市场的香港成为构建离岸人民币中心、促进人民币国际化进程的排头兵。香港已经建成了规模庞大的离岸人民币市场,这一市场的波动和走势对在岸人民币市场的干扰和影响不可轻视,关乎在岸人民币市场的稳定和国家金融安全。文章分析了在岸人民币市场即期汇率、远期汇率与香港离岸人民币市场即期汇率、远期汇率之间的关系,发现两两之间并不总是存在引导关系。     

The Response of Dynamic Herd Behavior to Domestic and U.S. Market Factors: Evidence from the Greater China Stock Markets

ABSTRACT

We investigate the dynamic reaction of stock market herding in China, Hong Kong, and Taiwan to unexpected shocks from domestic and U.S. market factors. In China and Taiwan, herding is more pronounced, and the investors tend to herd with the rising stock market returns. Overconfident investors will herd on the subsequent trading days under market stress. Compared with the response to the domestic market factors, the responses of herding in the Greater China stock market to the U.S. market factors are weaker. After the 2007–8 financial crisis, the U.S. market factors highly explain the forecast error variance of herding in the Shanghai A-share and Taiwan markets.     

Commonality in Liquidity: Evidence from an Order-Driven Market Structure

Events such as the 1997 East Asian financial crisis indicate that individual firm liquidity is strongly influenced by marketwide factors. Previous market microstructure research, however, focuses almost exclusively on the firm‐specific attributes of liquidity. Our study follows the recent shift in emphasis toward commonality by examining systematic liquidity in an order‐driven market structure. Using data from the Stock Exchange of Hong Kong, we show that commonality in liquidity includes both market and industry components, and is pervasive across size‐sorted portfolios. We also find a significant market and industry component in individual firms' order flow. In contrast to quote‐driven results, we do not find a positive relation between firm size and sensitivity to changes in marketwide bid‐ask spreads.     

The response of the external finance premium in Asian corporate bond markets to financial characteristics,financial constraints and two financial crises

Empirical investigation of the external finance premium has been conducted on the margin between internal finance and bank borrowing or equities but little attention has been given to corporate bonds, especially for the emerging Asian market. In this paper, we hypothesize that balance sheet indicators of creditworthiness could affect the external finance premium for bonds as they do for premia in other markets. Using bond-specific and firm-specific data for China, Hong Kong, Indonesia, Korea, Philippines, Singapore and Thailand during 1995–2009 we find that firms with better financial health face lower external finance premia in all countries. When we introduce firm-level heterogeneity, we show that financial variables appear to be both statistically and quantitatively more important for financially constrained firms. Finally, when we examine the effects of the 1997–1998 Asian crisis and the 2007–2009 global financial crisis, we find that the sensitivity of the premium is greater for constrained firms during the Asian crisis compared to other times.     

Corporate governance and firm value during a financial crisis

The main purpose of this paper is to evaluate the effects of management ownership and other corporate governance variables on Hong Kong firms’ stock performance following the onset of the Asian Financial Crisis (1997–98). Our results show that Hong Kong firms with a more concentrated management (executive board) ownership displayed better capital market performance during the 13-month period of the Crisis. We also find that firms with more equity ownership by non-executive directors, and in which the positions of CEO and board chairperson were occupied by the same individual experienced a smaller stock price decline. Our findings are consistent with the notion that there is a greater alignment of insiders with outside owners, rather than the expropriation by insiders who have the opportunity to divert value, for firms with higher levels of management ownership during an unexpected capital market crisis.     

Unobservable shocks as carriers of contagion

We propose an identified structural GARCH model to disentangle the dynamics of financial market crises. We distinguish between the hypersensitivity of a domestic market in crisis to news from foreign non-crisis markets, and the contagion imported to a tranquil domestic market from foreign crises. The model also enables us to connect unobserved structural shocks with their source markets using variance decompositions and to compare the size and dynamics of impulses during crises periods with tranquil period impulses. To illustrate, we apply the method to data from the 1997–1998 Asian financial crisis which consists of a complicated set of interacting crises. We find significant hypersensitivity and contagion between these markets but also show that links may strengthen or weaken. Impulse response functions for an equally-weighted equity portfolio show the increasing dominance of Korean and Hong Kong shocks during the crises and covariance responses demonstrate multiple layers of contagion effects.     

Office Property Returns in Shanghai,Guangzhou, and Shenzhen

Commercial property development in China has been a growth industry in recent years. This article examines the returns on office property in the three major cities of Shanghai, Guangzhou, and Shenzhen in the period 1991 to 1997. Analyses based on the Security Market Line (SML) show that property investments in the office sector in Shanghai and Guangzhou have excess returns and that Shanghai office property tends to dominate the optimal portfolios due to its superior risk-adjusted returns. While equal returns in Shanghai, Guangzhou, and Shenzhen cannot be rejected, the Shanghai office property is subject to the least systematic risk, compared with all other cities. Hong Kong office property is included only in the less risky optimal portfolios. In addition, our results indicate that there is little correlation between the office property returns in Hong Kong and the office property in Guangzhou and Shenzhen. Guangzhou and Shenzhen office markets, which are geographically relatively close to Hong Kong, tend to be more volatile than the Shanghai office market. However, owing to Shenzhens proximity to Hong Kong, there is significant correlation between the returns of the office property in Shenzhen and the office property in Hong Kong.     

The IPO of Industrial and Commercial Bank of China and the ‘Chinese Model’ of privatizing large financial institutions

We examine the privatization process of the Industrial and Commercial Bank of China (ICBC), the largest bank in the world by market capitalization, and its dual initial public offerings (IPOs) in the Hong Kong and Shanghai Stock exchanges in 2006. The Chinese government retains majority equity ownership of ICBC while foreign institutional investors hold minority equity stakes. Other large financial institutions went through the same reform process and have similar, post-IPO ownership structures. The largest Chinese banks, as a group, outperformed their counterparts from other emerging and developed markets before and during the 2007–2009 financial crisis. We argue that the ‘Chinese model’ of privatizing and managing large financial institutions can be advantageously used in other countries.     

中国商业银行市场势力对其效率和稳定性的影响

文章运用随机边界模型估算了中国商业银行近十年来的成本、利润效率,并分别以勒纳指数和Z指数代表市场势力和稳定性,考察了市场势力对银行经营效率和稳定性的影响。结果表明:内地商业银行整体的效率逐年上升,但仍落后于香港的银行;四大商业银行的效率低于中小银行。市场势力与效率呈反向关系,而与稳定性的关系要区别对待:市场势力一方面增加了中小银行和香港银行的稳定性,另一方面也增加了四大商业银行和交通银行的经营风险。因此,继续深入金融自由化和银行业改革,恰当地引入一些竞争,会对中国商业银行经营的效率和稳定性起到积极的作用。     

Product Market Competition and Financial Decisions During a Financial Crisis

We find that in the presence of the “flight to quality” during the 2007‐2008 financial crisis, firms that depended less on external financing (or internal finance dependent (IFD) firms) prior to the crisis were able to secure additional financing and increased investments, while external finance dependent (EFD) firms significantly contracted their external financing and investments. IFD firms’ increased investments during the crisis were associated with higher market share growth, while EFD competitors lost their market share. The results indicate that firms’ financial decisions during the financial crisis are interrelated with their product market dimensions.