An examination of price integration between stock market and international crude oil indices: evidence from China

Abstract

This study examines the degree of price integration between aggregate equity market indices of Hong Kong, the Chinese Shanghai and Shenzhen A and B share markets, and the international Brent crude oil price. The application of Vector Autoregressive (VAR) methods reveals that the regions' markets are generally price-segmented, with the prominent exception of Shanghai B market which is price-integrated with the domestic A share markets in both Shanghai and Shenzhen. The evidence would suggest that Chinese markets are more heavily influenced by domestic events in the long term than external influences.

Keywords:

• financial market integration
• causality
• oil
• China

JEL Classification:

• C22
• G15
• O16

Acknowledgements

The authors thank Emmanuel Haven and Tomasz Wisniewski for useful comments and the participants of the Asian Financial Association Conference, Hong Kong, July 2010.

Notes

This article was written while Shuk Yin Man was an MSc student at the University of Leicester.