This thesis investigates the direction of causality between SSE Composite Index and nine world major indices, which are DJI Average, S&P 500, NASDAQ Composite, FTSE 100, DAX, CAC 40, NIKKEI 225, Hang Seng Index and Straight Times. In order to capture China’s changing roles in global financial markets since the economic crisis of 2007-2008, four time periods, comprised of the pre-crisis period, the crisis period, the economy recovery period and the recession period, are defined and studied in this paper. The causal relationships are examined by employing a series of techniques including unit root checking, cointegration analysis as well as Granger causality tests based on ECM and lag-adjustment. The empirical results recognize the existence of long-run equilibrium relationships in pre-c...[ Read more ]

This thesis investigates the direction of causality between SSE Composite Index and nine world major indices, which are DJI Average, S&P 500, NASDAQ Composite, FTSE 100, DAX, CAC 40, NIKKEI 225, Hang Seng Index and Straight Times. In order to capture China’s changing roles in global financial markets since the economic crisis of 2007-2008, four time periods, comprised of the pre-crisis period, the crisis period, the economy recovery period and the recession period, are defined and studied in this paper. The causal relationships are examined by employing a series of techniques including unit root checking, cointegration analysis as well as Granger causality tests based on ECM and lag-adjustment. The empirical results recognize the existence of long-run equilibrium relationships in pre-crisis period and reveal an increasing trend in markets integration ever since the financial crisis. Transformed from a passive role before the crisis, China’s equity market became much pronounced during the crisis period and its impact reached an ephemeral peak at the recovery period, as such influence soon goes downgrade during recession. Feedback relationships and unidirectional causality have been consistently identified between China and the Western world ever since the financial crisis. However, apart from China’s dominating role in the recovery period, interactions between China and other Asian markets seem relatively inactive during all other periods.