Integration of China Stock Markets with International Stock Markets: An application of Smooth Transition Conditional Correlation with Double Transition Functions

This paper employs STCC-GARCH and DSTCC-GARCH models to investigate the time varying return co-movements between Chinese stock markets and stock markets of the US, UK, France and Japan. Unlike the earlier literature, we uncover that there are noticeable rising trends in conditional correlations among these markets particularly following the financial reforms in China. Moreover, the empirical results of DSTCC-GARCH specifications with time and various volatility measures indicate that the correlations increase not only over time but also during calm periods for A-shares, though mixed results are obtained for B-shares.