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Constant conditional correlation in a bivariate GARCH model: evidence from the stock markets of China

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  • Tsui, Albert K.
  • Yu, Qiao

Abstract

In this paper we examine the behaviour of stock returns in two emerging markets of China. These are the Shanghai and Shenzhen markets. It is found that both markets suffer from negative mean returns on Monday and Tuesday, but positive returns on Friday. In addition, we employ the bivariate GARCH model of Bollerslev [T. Bollerslev, Review of Economics and Statistics 72 (1990) 498–505] to capture the co-movements of stock returns between the markets. However, the information matrix test statistic does not support the null hypothesis of a constant conditional correlation in the stock returns.

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  • Tsui, Albert K. & Yu, Qiao, 1999. "Constant conditional correlation in a bivariate GARCH model: evidence from the stock markets of China," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 48(4), pages 503-509.
    • Handle: RePEc:eee:matcom:v:48:y:1999:i:4:p:503-509
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    2. Jeffrey Jaffe & R. Westerfield, "undated". "The Week-End Effect in Common Stock Returns: The International Evidence," Rodney L. White Center for Financial Research Working Papers 3-85, Wharton School Rodney L. White Center for Financial Research.
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    5. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
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    19. Kin-Yip Ho & Albert K Tsui, 2008. "Volatility Dynamics in Foreign Exchange Rates : Further Evidence from the Malaysian Ringgit and Singapore Dollar," Finance Working Papers 22571, East Asian Bureau of Economic Research.
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    21. Kin-Yip Ho & Ka Cheng Tsui, 2004. "Volatility Dynamics of the Tokyo Stock Exchange: A Sectoral Analysis based on the Multivariate GARCH Approach," Money Macro and Finance (MMF) Research Group Conference 2004 12, Money Macro and Finance Research Group.
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    23. Giovanni Barone-Adesi & Francesco Audrino, 2006. "Average conditional correlation and tree structures for multivariate GARCH models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(8), pages 579-600.
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