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Volatility Spillovers between Equity and Bond Markets: Evidence from G7 and BRICS

Author

Listed:
  • Jian Zhang

    (Department of Finance, Economics and Management School, Wuhan University, Wuhan, China.)

  • Dongxiang Zhang

    (Department of Finance, Economics and Management School, Wuhan University, Wuhan, China)

  • Juan Wang

    (Department of Finance, Economics and Management School, Wuhan University, Wuhan, China.)

  • Yue Zhang

    (Department of Finance, Economics and Management School, Wuhan University, Wuhan, China.)

Abstract

This study implies the causality-in-variance test newly developed by Hafner and Herwartz (2006) to investigate the volatility spillovers between domestic equity and bond markets in the G7 and BRICS countries. The empirical result shows that there is ethier unidirectional or bidirectional spillover effect in every developed market and weak evidence for Russia in both directions. In details, there is bidirectional volatility spillovers between the equity and bond markets in France, Brazil and South Africa, and unidirectional spillovers from the bond to the equity in the US, UK and Germany at 1% level of significance. However, no rigorous conclusions could be drawn by the LMGARCH model in the case of Japan, Italy, Canada, India and China. This has important implications for domestic cross-market portfolio allocation and risk management in both developed and emerging markets.

Suggested Citation

  • Jian Zhang & Dongxiang Zhang & Juan Wang & Yue Zhang, 2013. "Volatility Spillovers between Equity and Bond Markets: Evidence from G7 and BRICS," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 205-217, December.
    • Handle: RePEc:rjr:romjef:v::y:2013:i:4:p:205-217
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    References listed on IDEAS

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    Cited by:

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    2. Tule, Moses K. & Ndako, Umar B. & Onipede, Samuel F., 2017. "Oil price shocks and volatility spillovers in the Nigerian sovereign bond market," Review of Financial Economics, Elsevier, vol. 35(C), pages 57-65.
    3. Liu, Xueyong & An, Haizhong & Huang, Shupei & Wen, Shaobo, 2017. "The evolution of spillover effects between oil and stock markets across multi-scales using a wavelet-based GARCH–BEKK model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 374-383.
    4. Ahmad, Wasim & Mishra, Anil V. & Daly, Kevin J., 2018. "Financial connectedness of BRICS and global sovereign bond markets," Emerging Markets Review, Elsevier, vol. 37(C), pages 1-16.
    5. Afees A. Salisu & Kazeem Isah, 2017. "Modeling the spillovers between stock market and money market in Nigeria," Working Papers 023, Centre for Econometric and Allied Research, University of Ibadan.
    6. Liu, Xueyong & An, Haizhong & Li, Huajiao & Chen, Zhihua & Feng, Sida & Wen, Shaobo, 2017. "Features of spillover networks in international financial markets: Evidence from the G20 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 479(C), pages 265-278.

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    More about this item

    Keywords

    volatility spillover; equity market; bond market; causality-in-varince; LM-GARCH;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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