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Al-Barkaat Journal of Finance & Management
Year : 2016, Volume : 8, Issue : 2
First page : ( 1) Last page : ( 8)
Print ISSN : 0974-7281. Online ISSN : 2229-4503.
Article DOI : 10.5958/2229-4503.2016.00010.2

Do the Dragons Move Together; Co-integrated and Causality Study Among Chinese Bourses-A Curious Case of Hang Seng and Shanghai Stock Exchange

Ghosh Bikramaditya*

Associate Professor, Christ University, Bengaluru

*correspondence: bikram77777@gmail.com

JEL Classifications: C5, C22, C320

Online published on 24 January, 2017.


Hang Seng (HSI) and Shanghai (SSE) are the two pillars of Chinese dominance for the past 25–30 years among the global bourses. However, both the indices have very little in common, as far as ingredients are concerned. Mutual Stock Connect in 2014 has opened the doors from both the sides for the investors, raising a question on the co-integration once again. On one hand, Hang Seng attracted foreign investors (both retail and Institutional) and on the other hand Shanghai focussed more on domestic funds that are stickier in nature. This study inspects the chances and the intensity of the Causal relationship between these two dragon indices. The time period is for two and a half decades and the tools that are used include Johansen Co-integration Test and Bivariate Granger Causality. The test finds medium to strong relative dependency and reciprocity despite very few stocks being common. It also finds Shanghai (SSE) as the lead or the driver index, and Hang Seng (HSI) as the driven index. Even the model of two indices is different as well (HSI follows Moving Averages and SSE follows ARMA). In efficient markets, this kind of secular movement is quite evident in nature, and thus the study confirms that Chinese capital markets are proven to be tending towards the efficient side.



Time Series, Co-integrated, Causality, ARMA, Econometric Modelling.


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