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Contagion or Real Linkages? Some Evidence from China's Emerging Parallel Markets
Author(s) -
Kutan Ali M.
Publication year - 2007
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2007.00075.x
Subject(s) - china , emerging markets , crash , monetary economics , capital market , stock (firearms) , economics , capital flows , stock market crash , contagion effect , stock market , international economics , business , financial economics , financial crisis , macroeconomics , market economy , finance , mechanical engineering , liberalization , paleontology , horse , biology , political science , computer science , law , programming language , engineering
This paper empirically tests the existence of contagion using data on China's five parallel markets with different entry barriers for foreign capital. Taking the 1997 stock market crash as our experiment and using data on A, B and H shares, red chips and American depository receipts, the present paper tests whether these China‐backed market returns respond differently to foreign shocks during the pre‐1997 and post‐1997 crash period. Evidence suggests that the contagion effects are stronger in markets with fewer entry barriers. An important implication of our findings is that countries vulnerable to contagion could be justified to impose some limits on capital flows.