China's Stock Market And Bond Market Correlation Analysis

The stock market and the bond market are important parts of the financial system. As economic "barometer," the stock market can reflect the macroeconomic’s operation. As financial market’s "haven", the bond market is more important. Currently, the products for Chinese invest are not rich. The rapid development of the stock market and the bond market eases the contradiction between the increasingly strong investment demand and the lack of invested products. The stocks and bonds are mainly invested products, this determines that there is co-movement between the stock market and the bond market because of arbitrage. At the same time, the invested fund consisited of stock and bond intensifies the co-movement. Therefore, this paper studies the co-movement between the stock market and the bond markets based on different stock market conditions (bull, bear, rebound, shock), in order to provide reference for investor making reasonable investment decision.This paper uses VAR model, impulse response analysis, variance decomposition and BEKK-MGARCH model to study the co-movement based on the different stock market condition (bull, bear, rebound, shock) using the daily log return of the Hushen300Index’s closed price and the China Bond Aggregate Index during November,2006and, November2011. The research results show that:(1) The volatility of the stock market and the bond market is time-varying and clustering in the whole sample period. The mean and standard deviation of the stock market are greater than the bond market. This means that though the stock market has the advantage of high income, the risk is higher too, imbodying that the high income is in wake of high risk in the financial system.(2) The stock market return and the bond market return have co-movement in different markets, but the degree is not same. Concerning the stock market return, when the stock market in a bear market, the bond market return is the biggest influence factor, following is the rebounding and the shock condition. When in the bull condition the co-movement is weakest. Concerning the bond market return, when the stock market in a shock market, the stock market return is the biggest influence factor, following is the bear and the rebounding condition. When in the bull condition the co-movement is weakest.(3) The volatility spillover effect is not all the same when in different conditions. The volatility spillover effect exists only from the stock market to the bond market when the stock market in a bull or bear or shock condition. The volatility spillover effect not exists between the two markets when the stock market in a rebounding condition.In this paper, the characteristics and innovations lie in:(1) Comparative analysis the co-movement between stock market and bond market when the stock market in different(bull, bear, rebound, shock) conditions. The existing research about the co-movement of the Chinese stock market and the bond market almost see the sample period as a whole or divide the sample period with the tradable share reforming as the boundary, not consider the macroeconomics background. Therefore, in order to make up for the shortage, this paper comparative analysis the co-movement between stock market and bond market in different macroeconomics background.(2) Multiple perspectives analysis the co-movement between stock market and bond market. The existing research about the co-movement of the Chinese stock market and the bond market only analysis the co-movement between return, or only analysis the co-movement between volatility. Therefore, in order to make up for the shortage, this paper using VAR model, impulse response, variance decomposition and BEKK-MGARCH model method analysis the co-movement between the stock market and the bond market from return and volatility.