Analysis Of The Correlation Between Chinese Stock Market And Bond Market After The Subprime Mortgage Crisis

We study the relativity of stock market and bond market from 2009 to 2014 by adopting empirical approach and canonical research. Also,we study the impact of economic variables on their monthly correlation coefficient.Stocks and bonds have different legal connotation,but they share similar pricing model which is discount the future cash flows to the present.They differ in the terms and uncertainty of the future cash flow.Gennerally speaking,the stock’s future cash inflows are sustainable but with higher uncertainty. The bonds usually have a maturity date and coupon rate determines the possible future cash inflows.Stocks and bonds,they are both affected by the macroeconomic factors,such as interest rates,money suppy and so on. When these macroeconomic factors change, there may be changes in the stock and bond markets in the same direction or reverse.Overall, the studies in this article about the correlation of stock market and bond market can be divided into three parts.In the firs part, we discuss the pricing model of stocks and bonds. The pricing model is the theoretical basis of the correlation of stock market and bond market.Then,we discuss the impact of macroeconomic factors on the stock market and bond market.I establish a series of models for the stock market and bond market.The results of the models show that there is an obvious feature of autocorrelation in the bond market but not in the stock market. There is an very significant cointegration relaitionship between the index of the stock market and the bond market. In the relationship, the bond market is in a dominant position.In the third part, we calculate the the correlation coefficient for the monthly stock market and bond yields and establish an regression model to explain the change of the correlation coefficient. The results show that the 7-day interbank lending rates and money supply have significant impact on the correlation coefficient of the stock market and bond market. Then we discuss the regulatory background of China’s financial market and the factors in the background that have impact on the correlation of stock market and bond market.