Tests for the Transmission Mechanism of Stock Market Volatility between China and U.S during Subprime Crisis

The paper studies the dynamic correlation between China´s and the U.S stock markets prior and posterior to the Sub prime Crisis, 2007. By incorporating the problem of time-difference into our empirical study, we analyze the possibly existing transmission mechanism between these two markets in virtue of EDCC-GARCH model. We concludes that EDCC-GARCH model well-depicts the relationships between China´s and American stock market. From the dynamic correlation coefficients from 2005 to 2010, we can see that the relationship between China´s and the U.S. stock markets becomes more stable as the development of China´s financial market continues.