In this paper we investigate the dynamic linkage between mainland China stock market and Hong Kong H-share market over January 1994-December 2007 period, which is divided into four periods marked by Asian financial crisis in 1997 and the opening of China's B-shares to domestic investors in 2001, as well as by split-share structure reform in 2005. Nonlinear Granger causality testing proposed by Himestra and Jones (1994) has been used and a new Monte-Carlo simulation method was induced to calculate the confidence level. The results of non-linear causality tests show that there exists non-linear causality between the two markets during the sample period. However,this causality relationship varies in different periods, which can not been seen from the linear test results.
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