Correlation Of Volatility Between Chinese Stock Market And Chinese Bond Market:Basing On High-frequency Data

With the development and refining of financial markets,the analyses of these markets become increasingly deeper.And in this domain,the researches in the volatility of kinds of financial products play a very important role.Volatility means the indeterminacy of assets' return or the risk of financial assets.Thus the volatility become one of the most important feature of financial assets,and be extensively used in portfolio analyzing,risk management and option pricing.Since Chinese stock market and Chinese bond markets are important parts of Chinese financial markets,their volatility become the focuses of researches of many scholars.This paper will begin with the perspective of the realized volatility.Because Chinese financial market is closed at time 11:30 to 13:00 in the noon,it is different from foreign financial markets which don't close at this time.To comprehensively consider the impact of overnight information and lunch break information in the volatility of financial market,previous literature and researches consider the three methods for calculating realized volatility:the first is to remove the overnight information as well as lunch break,use only trading time realized volatility as a representative of the daily volatility;the second method is to sum the trading time volatility,the squared lunch break return and the squared overnight return as a representative of the daily volatility;the third way is to use the method provided by Hansen and Lunde(2005),refined by Masuda and Morimoto(2012),sum the trading time volatility,the squared lunch break return and the squared overnight return with appropriate weight to build a new volatility index.This article will finally chose the third method is the most scientific and accurate method to computing daily volatility.So we will take a third way to put the overnight information and lunch break information in to our computing,then hope to get a more accurate China's financial market volatility in the late analyses.After acquiring volatility of Chinese financial markets,we will use V-HAR-DCC-MGARCH to model the correlation between Chinese stock market and Chinese bond market volatility.In this situation,V-HAR model describes the correlation between the mean of volatility of two markets.And DCC-MGARCH model describes the correlation between the variance of volatility of these two markets.At last,depending on the analysis of the empirical results,we find a strong and stable correlation between these two markets' volatility.