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Structural breaks, dynamic correlations, and hedge and safe havens for stock and foreign exchange markets in Greater China

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  • Xiyong Dong
  • Seong‐Min Yoon

Abstract

This study investigates the dynamic relationship and hedging strategy between stock and foreign exchange markets in Greater China for the period 22 July 2005 to 30 November 2015. Using the DCC‐GARCH model with and without structural breaks, the results provide strong evidence of negative time‐varying correlations between these two markets in Greater China, consistent with the “stock‐oriented” models of exchange rates. Moreover, adding structural breaks reduces the degree of volatility persistence for all considered markets and can provide more accurate hedge and safe haven properties of the US dollar against Greater China stock markets. The findings have several important implications for portfolio risk managers, international investors and policymakers.

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  • Xiyong Dong & Seong‐Min Yoon, 2018. "Structural breaks, dynamic correlations, and hedge and safe havens for stock and foreign exchange markets in Greater China," The World Economy, Wiley Blackwell, vol. 41(10), pages 2783-2803, October.
    • Handle: RePEc:bla:worlde:v:41:y:2018:i:10:p:2783-2803
    DOI: 10.1111/twec.12584
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    2. Abuzayed, Bana & Al-Fayoumi, Nedal & Bouri, Elie, 2020. "Co-movement across european stock and real estate markets," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 189-208.
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    6. Awatef Ourir & Elie Bouri & Essahbi Essaadi, 2023. "Hedging the Risks of MENA Stock Markets with Gold: Evidence from the Spectral Approach," Computational Economics, Springer;Society for Computational Economics, vol. 61(1), pages 197-231, January.
    7. Linn Arnell & Emma Engström & Gazi Salah Uddin & Md. Bokhtiar Hasan & Sang Hoon Kang, 2023. "Volatility spillovers, structural breaks and uncertainty in technology sector markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-31, December.
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