Stock market interdependence between China and the world: A multi-factor R-squared approach

•A normalized index is derived based on the multi-factor R-squared measure.•Stock market interdependence between China and the world is studied.•China increased its stock market interdependence with the world after its accession to WTO.

Using the daily return indexes of 39 industries obtained from DataStream database during 3 January 2000-31 May 2011 of the world stock markets and the multi-factor R-squared approach, we derive a normalized index to analyze the impact of China's financial liberalization on its stock market interdependence with the world. It is found that China's financial market reforms after its WTO accession have significantly enhanced market interdependence.