An Empirical Study On The Correlation Between The Interbank Lending Market And The Stock Market, Bond Market

Interbank lending market, stock market, bond market are important parts of China’s financial market. Interbank lending market is a part of the money market, stock market and bond market are important parts of the capital market. Money market and capital markets are both based on financial transactions. Capital flows in one market will inevitably lead to fluctuations in another market. Survey on the correlation and fluctuations between the various markets can provide the basis for market forecasts and government policy. What’s more, the research among the conduction effect of three markets will also provide effective guidance for investors to make more efficient portfolio.The purpose of this study is to analyze the empirical relationship between interbank markets, stock market and bond market. The correlation is reflected in two aspects, one is the effect a market brings to the other two markets when it is affected by the impact of the accident; the second is the risk spread between the various market, volatility effects, as well as changes on the dynamic correlation between the various market.This paper analyzes the interaction basic between lending market, stock market and bond market, which is common investors, capital liquidity, finance intermediation. Then refer the relevant theories, including the theory of money demand, asset choice theory, behavioral finance theory, discussing the interaction of every two markets. To make empirical correlation analysis with the representative index of each market, we establish multi-variable VAR model, using impulse response function and variance decomposition tools to study the interaction between the markets and establish multivariate GARCH model to analyze volatility spillover effects between various markets and making a dynamic correlation coefficient analysis.According to the results of empirical analysis, we suggest, firstly, the connectivity of the money market and the capital market is not strong; Secondly, the interaction between the bond market and stock market is asymmetric; Thirdly, volatility spillover effects exists between the stock market and the bond market, interbank market. Volatility spreads only from the interbank market to the bond market; fourthly, there is significant dynamic correlation between the stock market, bond market and inter-bank lending market.Finally, on the basis of theoretical analysis and empirical research, this paper made several policy recommendations on the development of financial markets. That is to strengthen the connectivity of money market and capital market; make efforts to develop the bond market; to develop institutional investors, improve the level of individual investors and so on.