The Association of China Stock Index with Japan and US

With trend of globalization in the international financial market, a more intimate relationship of capital flows is being formed day by day in capital market. Thus, it is important to understand the relationship of individual country with others in the international stock markets. The main purpose of this study is to explore the relationship of Stock Indices among China, US, and Japan. The study covers the period from March 2001 to December 2006. The Cointegration Test, Granger Causality, and Forecast Error Variance Decomposition were used to identify whether there exists a long-term relationship between China, US, and Japan in the stock market. Results show that six Stock Indices present severe volatility, however, there is no Cointegration relationship. Further, Shanghai B Shares is ahead of other three stocks and influences other indices. Further, the US stock is ahead of Shenzhen B Shares and Japan Shares. Since China stock market is closed, its Stock Index is not influenced by US and Japan markets.