Download or read book Modeling International Diversification Between the Chinese Stock Market and Others written by Saiful Izzuan Hussain and published by . This book was released on 2015 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: China's stock market has grown rapidly since its introduction in 1991 and it has become one of the world's leading stock markets. This study is concerned with the dependence structures that exist between the Chinese stock market and other major stock markets including those in the US, UK, Japan, Hong Kong and Taiwan. In this research, we use time-varying copula to model dependence due to its ability to capture the non-normality distribution compared to linear correlation. Furthermore, this study uses Extreme Value Theory (EVT) to model the tails for the marginal distributions. Our results reveal a strong dependence between Chinese and Hong Kong stock markets for the upper tail dependence. Lower tail dependence exists between Taiwan markets. This indicates the boom in the Chinese stock market could affect the Hong Kong one and a crash in Taiwan could potentially damage the latter. The outcomes of this cannot be explained using linear correlation. Findings also show that the Hong Kong stock market has stronger upper dependence compared to its lower tail and this serves as an alternative diversification strategy during a downturn. These findings provide better information and suggestions for risk management, specifically in portfolio diversification and international asset allocation benefits. Chinese stock market investors could use this information to devise risk management strategies.