Financial integration and international asset pricing of Chinese stock markets

Sammanfattning: Our analysis draws several meaningful findings. First, we find that there is predictability of Chinese stock market return on latent variables which include common and local specific information. We also find that the conditional volatility and local price of risk are time varying for China. Price of risks for world market as well as China market are derived. Unconditional multi-factor asset pricing model tests with global factors also yield positive results. Using Hong Kong and US risk factors with Fama-French 3-factor model, we are able to observe higher factor loadings across size and book-to-market sorted portfolios for Chinese market portfolios, implying certain degree of convergence of local and global factor pricing.