The Dynamic Correlation And Fluctuation Spillover Effects Of Interest Rate, Exchange Rate And Stock Price In China

Currently, with the genera acceleration of the economic globalization, financial liberalization, and internet popularization, the relationship between countries and financial markets is gradually enhanced, and this correlation can be showed by the significant market dynamic correlation and volatility spillover effect. In some sense, the dynamic correlation and volatility spillover effect represent the degree of marketization and effectiveness of the global or some country.Effective financial market is a double-edged sword, on the one hand, it is the precondition of effectively implement relevant policies; on the other hand, when a market suffered from some shock, which can easily infect other financial markets, even, lead to financial crisis. Therefore, research the Dynamic correlation and volatility spillover effect of our countries’ financial markets is meaningful. For one thing, we can realize the Correlation degree and the conduction direction of the financial markets; for another thing, the results can help investors make investment decisions, and help government strengthen the market correlation while formulate relevant policies to prevent financial contagion.Monetary market, capital market, and foreign exchange market are the core parts of the financial market in China. The most representative indicators of the money market, capital market and foreign exchange market respectively is the interest rates, stock price and the exchange rate. Based on current literature and the classical theories,this paper uses.the overnight SHIBOR, Dollar Against the RMB Exchange Rate, Shanghai Composite Index as the proxy variable of the interest rates, stock price and exchange rate. And then, put them in one system, Relying on the Ternary DCC-GARCH, Ternary GARCH-BEKK, and so on, we can analyze the correlation between three variables.From the overall, dynamic correlation does not exist between the three variables, or the dynamic correlation is not significant; at the same time, the correlation coefficient between them is small. Even so, we still can see, the correlation coefficient between the any two of the three is negative, and the correlation coefficient between the exchange rate and stock price is the largest. Meanwhile, including these three variables, there only exits bidirectional volatility spillover effect between the Exchange rate and the stock index.Through the empirical study, between the interest rates, exchange rates and the stock price, the correlation of the latter two variables is bigger. Maybe this is owing to the marketization of the monetary market is much weaker than the exchange market and the stock market.