Spillover and Cojumps Between the U.S. and Chinese Stock Markets

Abstract

There is an urgent need to understand the spillover and cojump effects between the U.S. and Chinese stock markets. The paper finds that since July 2005, the U.S. stock market has caused short-run spillover effects on returns on the Chinese stock market. More specifically, price changes in the United States can be used to predict both closing-to-opening and closing-to-closing returns on the Chinese stock market on the next day. However, there is no significant volatility spillover between the two markets. Both markets have shown stronger cojump behavior since the subprime crisis. The return relationships between the two stock markets are robust.

Keywords:

• Chinese stock market
• cojump
• return spillover
• U.S. stock market
• volatility spillover