Title: The linkage between stock and inter-bank bond markets in China: a dynamic conditional correlation (DCC) analysis
Authors: Ahmed Hassanein; Hanaa Elgohari
Addresses: Gulf University for Science and Technology, Kuwait; Mansoura University, Egypt ' Mansoura University, Egypt
Abstract: This study applies the Dynamic Conditional Correlation (DCC) model to investigate the correlation between stock and inter-bank bond markets in China over the period from 2002 to 2016. The study finds no conditional correlation between China's stock and bond markets over the sample period. However, after dividing the sample into four different time scales, we find a significant correlation for the following periods: bond market fluctuations (2002-2005), recovery and persistence (2010-2013), and stock market shock (2014-2016). However, there is an insignificant correlation during the Global Financial Crisis (2006-2009). Further, we apply the BEKK model as a confirmatory analysis and find the presence of spillover effects between the stock and bond markets in both directions during the following periods: bond market fluctuations, recovery and persistence, and stock market shock. These results suggest that the correlation between the stock and bond markets in China is a time dependent.
Keywords: DCC; dynamic conditional correlation; BEKK; spillover effects; financial markets; China.
International Journal of Economics and Business Research, 2020 Vol.20 No.1, pp.80 - 99
Received: 28 Aug 2019
Accepted: 14 Jan 2020
Published online: 16 Jun 2020 *