Cuestas, J.C. and Tang, B. (2015) Exchange Rate Changes and Stock Returns in China: A Markov Switching SVAR Approach. Working Paper. Sheffield Economic Research Paper Series (SERPS), 201502 (024). Department of Economics, University of Sheffield ISSN 1749-8368
Abstract
This study empirically investigates the spillover effects between exchange rate changes and stock returns in China. Evidenced by multivariate Granger causality tests, stock returns Granger-cause exchange rates changes, but exchange rate changes exhibit little effect on stock returns. As the conventional structural VAR (SVAR) approach fails to examine the contemporaneous effects, we apply the Markov switching SVAR model to allow the coefficients and variances of endogenous variables to be state-dependent. The regimeswitching estimates indicate that the fluctuation in Shanghai B-share returns has positive effects on the remaining stock markets, but a negative impact on foreign exchange markets. This also reveals that the spillovers have longer durations during two financial crisis periods. Finally, this paper suggests investors to pay attention to systematic risks from RMB policy changes, which might alter the current unidirectional causality in the Chinese financial market.
Metadata
Item Type: | Monograph |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | The Sheffield Economic Research Paper Series (SERPS) offers a forum for the research output of the Department of Economics, University of Sheffield. Papers are reviewed for quality and presentation by two internal referees and a departmental editor. However, the contents and opinions expressed remain the responsibility of the author(s). Comments are welcomed and should be addressed to the individual author(s). |
Keywords: | exchange rate changes; stock returns; Markov switching SVAR; Chinese financial market |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) > Sheffield Economics Research Papers Series |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 27 Jan 2016 17:21 |
Last Modified: | 27 Jan 2016 17:21 |
Published Version: | https://www.sheffield.ac.uk/economics/research/ser... |
Status: | Published |
Publisher: | Department of Economics, University of Sheffield |
Series Name: | Sheffield Economic Research Paper Series (SERPS) |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:92689 |