An Empirical Analysis of the relation of Shanghai and Shenzhen Stock Exchanges in VAR Model

In this paper, we randomly selected the data on Shenzhen Component Index and Shanghai Composite Index from 19 May, 2008 to 18 May, 2009 and the use of econometric theory of co-integration and vector autoregressive (VAR) model for analysis. First of all, according to the charts of the stock price index from the two cities, we find that the two cities in response to external information are on the consistency and the overall trend is consistent. Second, establish a VAR model then do statistical tests, unit root tests, Granger causality test and co-integration test. Unit root test derived: stock indexes of the two cities are subject to I(I) process and they are non-stable, short-term reaction to market information is not synchronized; Granger causality test to draw: Shanghai and Shenzhen Stock Index are synchronous; Co-integration test finds out: there is a long-term and stable relationship and the linkage between the two indexes are implicit; Finally, establish vector error correction model, then carry on the impulse response function analysis and variance decomposition analysis.