Internal Market Efficiency, Market Co-movement, and Cross-Market Efficiency: The Case of Hong Kong and Shanghai Stock Markets

• DOI: 10.1007/s10690-017-9232-3
• Publication Date: 2017-10-09T19:22:40Z
• Authors: Ebenezer Asem; Vishaal Baulkaran; Rossitsa Yalamova; Xiaofei Zhang
• Keywords: 0502 economics and business; 05 social sciences; 8. Economic growth; 1. No poverty

We examine the effects of the 2008 financial crisis on the cross-market efficiency of the Hong Kong and Shanghai stock markets. Our results show a sharp decline in the cross-market efficiency during the financial crisis. We investigate whether this is due to lower internal market efficiency or higher market co-movement. The results show no evidence that the internal market efficiency dropped in Hong Kong or Shanghai during the crisis. In contrast, we document a strong increase in the market co-movement during the crisis. These results suggest that the decline in cross-market efficiency during the financial crisis is due to increased market co-movement and not a decline in internal market efficiency.