Analysis Of The Correlation Between Macro-economy And Stock Market Volatility Based On Time-varying Copula

China's economy has become an important driving force of the development of the world economy,and China's stock market has also played an important role in macro-economic development.The correlation between macro-economy and stock market are endowed with new meaning,especially the world economy has undertaken the worst effects of the financial crisis.In order to tackle economic structure adjustment,inflation problem,steady growth problem and the livelihood of the people protection problem,our government has issued a ser ies of measurement,and the mentioned problem has increasingly aroused people's concern.This paper employs a model that can capture asymmetric correlation and nonlinear correlation between China's macro-economy and stock market name Copula model.In order to dig the structure inner correlation between China's macroeconomy and stock market,this paper adopts independent component analysis(ICA)model to extract the independent components of China's macro-economy and captures the essence of the problem.In order to establish Copula model correctly,marginal distributions concern macro-economic independent components and Shanghai Composite Index Return should be established first.This paper adopts AR(1)-GJR(1,1)-skewed t and AR(1)-GJR(1,1)-t model to fit four independent components that contains ARCH effect and Shanghai Composite Index Return and choose the optimal marginal distribution model.Finally,this paper adopts four kinds of common time-varying Copula functions to fit the correlation between macro-economy and stock market,so as to reveal the risk correlation between macro-economy and stock market.The results shows: firstly,ICA model can seek the independent components of the macro-economy that reveal the essential feature of China's economy and the reader can deeply understand the structure relationship between macro-economy and stock market fluctuation.Secondly,AR(1)-GJR(1,1)-skewed t model fits the marginal distribution of the macro-economy and stock market better than AR(1)-GJR(1,1)-t model.Thirdly,all Copula functions can perform well.The correlation between IC2(Fixed Asset Investment Factor)and SH(Shanghai Composite Index Return)fluctuates severely and it is not a good method to control and guide China's stock market development from fixed asset investment aspect.But the correlation coefficient between IC4(Price Factor)and SH reaches above 0.95,it is a breakthrough point to guide China's stock market from price factor.In order to promote China's stock market,our government can stabilize prices and increase investment and consumption.Fourthly,the lower correlation coefficient between IC5(Fiscal Policy Factor)and SH is significantly greater than its upper correlation coefficient.The correlation between China's macro-economy and stock market in fiscal contraction period is greater than fiscal expansion period.