Journal article Open Access
This paper provides a practical means to verify the level of interdependency between major stock markets in the world and that of China. The recent devaluation of RMB and interest rate change in China were used as two exogenous shocks to gauge the response by major stock markets. This study answers the question of whether China’s economic policy significantly influences the world’s financial markets. If so, to what extent is that influence? The first question is answered by analyzing the index distribution before and after the shock by analyzing distribution probability of the Z score of each market. The sample consists of daily indices from 15 stock markets over a period of 6 months spanning from September 2015 through February 2016. The Shanghai Exchange was used as a proxy for China. The remaining 14 markets were used to correlate with China on the basis of scale drift measurement and trend direction. It was found that outside of China, only SP100 and DOW are significantly influenced by China. All stock indices from the ASEAN and other Asia Pacific countries showed no significant relations with China. Among the three major exchanges in Europe: FTSE100, CAC400 and DAX all showed complete independence from China. We also report a surprise finding that there was significant market integration among the ASEAN stock markets and that the ASEAN market was independent of China. Using SET as a dependent variable, the coefficient of determination for SET against JKSE (Indonesia), KLCI (Malaysia, and PSEi (Philippines) are 0.97, 0.87 and 0.82 with a significant reading of T = 11.45, 5.22 and 4.23 respectively.
ARTICLE 6, Vol 2, No 2, The Influence of China on Major Stock Markets.pdf