The Time-varying Correlations In Return And Volatility Between Chinese Stock, Bond And Gold Markets

Economic and financial globalization has enhanced the interrelationship between the international financial markets. While China is being affected by the world changing economy, the spillover effects among our domestic financial markets seems to be deepening. The limitation in international investment for domestic capital gives a chance to our own financial system to arouse attention of our numerous investors and scholars. So the research in Chinese stock, bond and gold markets to find correlations between them will definitely have significance in assets location, risk management and policy making.By standing on the exist academic findings and scholar achievements, the thesis describes the question in two parts, saying the dynamic correlation in return and in volatility, uses the modified VAR and EGARCH models to evaluate the inter-markets correlation feature, and then makes possible analysis by combining the economic condition with theories of spillover effect and substitution effect. Further, the thesis divides the whole sample period into seven parts to find out the time-varying correlation between markets, according to which advises on investment and regulation have been proposed.On aspect of correlation in return, the results show that the two-way spillover effects exist between stock and gold markets during the financial crisis from the year 2007 to 2009, and the coefficient is positive. The substitution effect in return from gold to stock markets is growing stronger, but the reverse is more powerful during subprime crisis. The replacement of bonds to stock presents an up going trend, which proves bond market to be a heaven for stock investment. And the competing role for heaven makes the spillover and substitution effect in return between bond and gold markets attend to weaken each other' performance. On aspect of volatility, the dynamic correlations in Chinese financial markets are obvious, among which the spillover effects from stock markets to others are gradually growing stronger.