The impact of the opening up of the B-share markets on the integration of Chinese stock markets

The opening up of B-share markets to domestic investors in 2001 is a landmark event in the development of the Chinese stock markets. This chapter aims to assess the possible changes in the market mechanism associated with this important event. A VECM-DCC-MVGARCH model is employed to investigate the market integration process in Chinese stock markets around the opening up of the B-share market to domestic investors. Our empirical results reveal that the Chinese stock markets were segmented before the opening up whereas they were integrated to some extent in the long-run after the opening up of B-share markets. Moreover, it is also found that A-share markets played a dominant role on the information flows between A-share and B-share markets; the short-run information flows between A-share and B-share markets were more rapid after the opening up of B-share markets.