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Convergence of Returns on Chinese and Russian Stock Markets with World Markets: National and Sectoral Perspectives

Published online by Cambridge University Press:  26 March 2020

Jan Babecký ,
Luboš Komárek  and
Zlatuše Komárková
Jan Babecký*
Affiliation:
Czech National Bank
Luboš Komárek*
Affiliation:
Czech National Bank, Faculty of Economics of the Technical University Ostrava and University of Finance and Administration, Prague
Zlatuše Komárková*
Affiliation:
Czech National Bank and University of Finance and Administration, Prague
*
E-mail: jan.babecky@cnb.cz.
E-mail: lubos.komarek@cnb.cz
E-mail: zlatuse.komarkova@cnb.cz
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Abstract

Interest in examining the financial linkages of economies has increased in the wake of the 2008/9 global financial crisis. Applying the concepts of beta- and sigma-convergence of stock market returns, we assess changes over time in the degree of stock market integration of Russia and China with each other, as well as with respect to the United States, the Euro Area, and Japan. Our analysis is based on national and sectoral data spanning the period September 1995 to October 2010. Overall, we find evidence for gradually increasing convergence of stock market returns after the 1997 Asian financial crisis and the 1998 Russian financial crisis. Following a major disruption caused by the 2008/9 global financial crisis, the process of stock market return convergence resumes between Russia and China, as well as with world markets. Notably, the episode of sigma-divergence from the 2008/9 crisis is stronger for China than for Russia. We also find that the process of stock market return convergence and the impact of the recent crisis have not been uniform at the sectoral level, suggesting the potential for diversification of risk across sectors.

Keywords

Stock market integrationbeta-convergencesigma-convergenceChinaRussiasectoral and national analysisC23G15G12
Type
Research Articles
Information
National Institute Economic Review , Volume 223 , February 2013 , pp. R16 - R34
Copyright
Copyright © 2013 National Institute of Economic and Social Research

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Footnotes

This work was supported by the Bank of Finland's Institute for Economies in Transition (BOFIT) and the Grant Agency of the Czech Republic within project No. P403/11/2073. We thank the two anonymous referees, our colleagues at BOFIT (especially Iikka Korhonen, Aaron Mehrotra, Zuzana Fungáčová, Laura Solanko and Laura Vajanne) and the Czech National Bank (especially Jan Frait, Tomáš Holub, and Michal Hlaváček) for their valuable comments and data support. The paper benefited from comments at the seminar in BOFIT and the ESCB Eighth Emerging Market Workshop. The views presented in this paper are solely those of the authors and do not necessarily represent those of the Czech National Bank or other affiliated institutions.

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