Empirical investigations into stock market integration and risk monitoring of the emerging Chinese stock markets
Abstract
The degree of stock market integration has important implications for cross-border portfolio
diversification, for which Mainland China has become an attractive destination,
particularly following the gradual opening-up of its A-share market to foreign institutional
investors. The first part of this thesis explores the various aspects of stock market integration
taking place in Mainland China, in an attempt to resolve the ambiguity between extant
empirical and anecdotal evidence on the issue. The evidence drawn from different statistical
perspectives collectively establishes that the Mainland Chinese stock market is in a process of
further integrating with a selection of the world’s developed stock markets. Nevertheless, such
increased integration should not preclude foreign institutional investors from diversifying into
the Chinese A-share market, as the current integration is far from being complete.
Adopting appropriate risk monitoring techniques for venturing into the volatile Chinese A-share market is another imperative issue faced by foreign institutional investors, whose risk
practices and economic capital are largely regulated by the Basel Accord. The second leg of
this thesis addresses this problem through an evaluation of various volatility forecasting
models for Value-at-Risk (VaR) reporting. Our results highlight the importance of adopting
heterogeneous risk monitoring models in different investment environments for the purpose
of regulatory compliance and optimal economic capital allocation.
Overall, the studies contained in this thesis should add knowledge to the burgeoning literature
on international financial integration at large, while serving the interests of institutional
investors and financial regulatory authorities alike.
Type
Thesis, PhD Doctor of Philosophy
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