This paper proposes an efficient test designed to have power against alternatives where the error correction term follows a Markov switching dynamics. The adjustment to long run equilibrium is different in different regimes characterised by the hidden state Markov chain process. Using a general nonlinear MS-ECM framework, we propose an optimal test for the null of no cointegration against an alternative of a globally stationary MS cointegration. The Monte Carlo studies demonstrate that our proposed tests display superior powers compared to the linear tests. In an application to price-dividend relationships, our test is able to find cointegration while linear based tests fail to do so.
Focusing on the spillover effects between the CSI 500 stock index futures market and its underlying spot market during April to September 2015, the purpose of this paper…
Focusing on the spillover effects between the CSI 500 stock index futures market and its underlying spot market during April to September 2015, the purpose of this paper is to explore whether Chinese stock index futures should be responsible for the 2015 stock market crash.
Using both linear and non-linear econometric models, this paper empirically examines the mean spillover and the volatility spillover between the CSI 500 stock index futures market and the underlying spot market.
The results showed the following: the CSI 500 stock index futures market has significant one-way mean spillover effect on its spot market. The volatility in CSI 500 stock index futures market also has a significant positive spillover effect on its spot stock market, and the mean value of dynamic correlation coefficient between the two market volatility is 0.4848. The spillover effect of the CSI 500 stock index futures market on the underlying spot market is significantly asymmetric, characterized by relatively moderate and slow during the period of the markets rising, yet violent and rapid during the period of the markets falling. The findings suggest that although the stock index futures itself was not the “culprit” of Chinese stock market crash in 2015, its existence indeed accelerated and exacerbated the stock market’s decline under the imperfect trading system.
Different from the existing literature mainly focusing on CSI 300 stock index futures, this paper empirically examines the impact of the introduction of CSI 500 stock index futures on 2015 Chinese stock market crash for the first time.