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The dynamic correlations between the G7 economies and China: Evidence from both realized and implied volatilities

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  • Xingguo Luo
  • Xuyuanda Qi

Abstract

This paper investigates the dynamic correlations between the G7 economies and China by using the EGARCH/DCC models proposed by Engle and Figlewski ( ). We find that the correlations between the G7 economies can be captured by a one‐factor model when either the realized or implied volatilities are used. Although no significant correlations between China and the G7 countries are captured using realized volatilities, we find that the correlations increased during the 2008 financial crisis. Furthermore, we show that the one‐factor model is useful for hedging the volatility risks of individual countries.

Suggested Citation

  • Xingguo Luo & Xuyuanda Qi, 2017. "The dynamic correlations between the G7 economies and China: Evidence from both realized and implied volatilities," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(10), pages 989-1002, October.
    • Handle: RePEc:wly:jfutmk:v:37:y:2017:i:10:p:989-1002
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    Cited by:

    1. Bouri, Elie & Lucey, Brian & Roubaud, David, 2020. "Dynamics and determinants of spillovers across the option-implied volatilities of US equities," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 257-264.
    2. Peng, Huan & Chen, Ruoxun & Mei, Dexiang & Diao, Xiaohua, 2018. "Forecasting the realized volatility of the Chinese stock market: Do the G7 stock markets help?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 501(C), pages 78-85.
    3. Daniel Borup & Bent Jesper Christensen & Yunus Emre Ergemen, 2019. "Assessing predictive accuracy in panel data models with long-range dependence," CREATES Research Papers 2019-04, Department of Economics and Business Economics, Aarhus University.
    4. Xu Gong & Boqiang Lin, 2022. "Predicting the volatility of crude oil futures: The roles of leverage effects and structural changes," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 610-640, January.
    5. Li, Tao & Ma, Feng & Zhang, Xuehua & Zhang, Yaojie, 2020. "Economic policy uncertainty and the Chinese stock market volatility: Novel evidence," Economic Modelling, Elsevier, vol. 87(C), pages 24-33.

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