Research On The Time Varying Characteristics Of The Stock-Bond Correlation In Mainland And Hong Kong

The stock-bond correlation has important influence on investment decision-making,risk management,asset pricing,etc.This article identifies the influential factors of stock-bond correlation by analyzing the policy changes and macroeconomic conditions in mainland China and Hong Kong.Furthermore,this article compares the similarities and differences between mainland China and Hong Kong's stock-bond correlation,in order to further prove the influencing mechanism of the stock-bond correlation,and provide experience for innovation and perfection of the mechanism of Chinese capital market.Using monthly stock and bond return data for both the mainland China(2002.2-2016.12)and Hong Kong(2007.1-2016.12),this article uses the dummies condition correlation GARCH model to study the impact of business cycle,proactive fiscal policy,QFII system,non-tradable share reform and the introduction of stock index futures on stock-bond correlation.In addition,this article uses the smooth transition condition correlation(STCC-)GARCH model to study the impact of interest rate,inflation rate and turnover rate on stock-bond correlation in mainland China and Hong Kong.Empirical results indicate that both mainland China and Hong Kong have small negative stock-bond correlation,which is-0.075 in mainland China and-0.011 in Hong Kong,and various factors have the similar influence direction on mainland and Hong Kong's stock-bond correlation.First,the stock-bond correlation is higher in the economic expansion and lower in economic depression.Second,the proactive fiscal policy has negative impact on stock-bond correlation in mainland China.Third,the introduction of QFII system and stock index futures increase the stock-bond correlation in mainland China,but stock-bond correlation is lower during the non-tradable share reformation.Fourth,higher short-term risk-free rate and inflation rate tend to follow lower stock-bond correlation,while higher turnover rate in stock market tend to follow higher stock-bond correlation.