Volatility connectedness and market dependence across major financial markets in China economy

Kim Hiang Liow*, Jeongseop Song, Xiaoxia Zhou

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    Abstract

    With the increasing openness of the China economy, the goal of this paper is to examine volatility connectedness and spillover transmissions across markets for stock, public real estate, bond, commodity futures, and foreign exchange within the China economy. Over the full study period, we find that the five China's financial markets are not strongly volatility connected. The bond market is the predominant market of spillover transmission, whereas the commodity futures market is the top net recipient of volatility connectedness shocks. The role of spillover transmission increased during the three financial crisis periods studied. Additionally, the five markets display some degree of nonlinear causal dependence. During the Chinese stock market crash, the stock and public real estate reacted with similar patterns and larger positive or negative responses to shocks, whereas bonds and commodity futures have milder shocks response. Our findings have important implications for portfolio investors in asset diversification and policymakers in their domestic macroprudential policy coordination and control.
    Original languageEnglish
    Pages (from-to)397-420
    Number of pages24
    JournalQuantitative Finance and Economics
    Volume5
    Issue number3
    DOIs
    Publication statusPublished - 26 May 2021

    Keywords

    • volatility connectedness
    • spillover transmissions nonlinear causal dependence
    • market dependence
    • impulse response functions
    • China economy

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