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dc.contributor.authorDa Veiga, Bernardo
dc.contributor.authorChan, Felix
dc.contributor.authorMcAleer, M.
dc.identifier.citationda Veiga, Bernardo and Chan, Felix and McAleer, Michael. 2008. Evaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares. Pacific Basin Finance Journal. 16 (4): pp. 453-475.

This paper analyses the time-varying conditional correlations between Chinese A and B share returns using the Dynamic Conditional Correlation (DCC) model of Engle [Engle, R.F. (2002), "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models", Journal of Business and Economic Statistics, 20, 339-350.]. The results show that the conditional correlations increased substantially following the B share market reform, whereby Chinese investors were permitted to purchase B shares. However, this increase in correlations was found to have begun well before the B share market reform. This result has significant implication relating to the structure of the information flow between the markets for the two classes of shares. Value-at-Risk (VaR) threshold forecasts are used to analyse the importance of accommodating dynamic conditional correlations between Chinese A and B shares, and thus reflects the impact of the changes in information flow on the risk evaluation of a diversified portfolio. The competing VaR forecasts are analysed using the Unconditional Coverage, Serial Independence and Conditional Coverage tests of Christoffersen [Christoffersen (1998), "Evaluating Interval Forecasts", International Economic Review, 39, 841-862], and the Time Until First Failure Test of Kupiec [Kupiec, P.H., (1995), "Techniques for Verifying the Accuracy of Risk Measurements Models", Journal of Derivatives, 73-84]. The results offer mild support for the DCC model over its constant conditional correlation counterpart.

dc.publisherElsevier BV
dc.subjectChinese stock markets
dc.subjectDynamic conditional correlation
dc.subjectChina A and B shares
dc.subjectMarket reform
dc.titleEvaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares
dc.typeJournal Article
dcterms.source.titlePacific Basin Finance Journal

The link to the journal’s home page is: Copyright © 2007 Elsevier B.V. All rights reserved

curtin.accessStatusOpen access
curtin.facultyCurtin Business School
curtin.facultySchool of Economics and Finance

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