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Does subprime crisis affect Chinese stock market returns

This paper aims at testing the influence of Subprime Crisis on Chinese stock market returns. By means of newly proposed time series spatial analysis methodology, we investigate the dominance behavior of daily returns on both Shanghai Stock Exchange Composite Index and Shenzhen Stock Exchange Component Index between before and after the crisis. Little spatial dominance could be found, even considering the appreciation of the RMB, no matter in short-term or long run investment. For rationale investors, there are no significant risk and preference changes about domestic stock market in the post Subprime Crisis era. | Journal of Applied Finance Banking vol. 2 no. 6 2012 163-173 ISSN 1792-6580 print version 1792-6599 online Scienpress Ltd 2012 Does Subprime Crisis Affect Chinese Stock Market Returns Kai Shi1 and Li Nie2 Abstract This paper aims at testing the influence of Subprime Crisis on Chinese stock market returns. By means of newly proposed time series spatial analysis methodology we investigate the dominance behavior of daily returns on both Shanghai Stock Exchange Composite Index and Shenzhen Stock Exchange Component Index between before and after the crisis. Little spatial dominance could be found even considering the appreciation of the RMB no matter in short-term or long run investment. For rationale investors there are no significant risk and preference changes about domestic stock market in the post Subprime Crisis era. JEL classification numbers G01 G10 C58 Keywords Subprime crisis Stock returns Spatial dominance Stochastic dominance Expected utility 1 Introduction Subprime Crisis brings a big catastrophe to global financial markets as well as casts a cloud over the world economic sustainable growth. Although originating from mortgage loan market it spreads out rapidly into many different financial fields and even influences worldwide real economy growth. There have been a vast amount of literatures that address the issues of contagion linkage volatility spillover and feed back etc. Chong 2011 analyzed the effect of Subprime Crisis on U.S. stock market and found bigger impact on stock market volatility rather than on stock returns. Olowe 2009 presented 1School of Economics Northeast Normal University Changchun P.R. China 130117. e-mail shik142@nenu.edu.cn. Preparatory School For Chinese Students to Japan Changchun P.R. China 130117. Graduate School of Commerce and Management Hitotsubashi University 2-1 Naka Kunitachi Tokyo 186-8601. e-mail brilliant.so.kai@gmail.com . Corresponding author. Article Info Received July 5 2012. Revised August 28 2012. Published online .