Abstract
This study applies the Dynamic Conditional Correlation (DCC) model to investigate the correlation between stock and inter-bank bond markets in China over the period from 2002 to 2016. The study finds no conditional correlation between China's stock and bond markets over the sample period. However, after dividing the sample into four different time scales, we find a significant correlation for the following periods: bond market fluctuations (2002-2005), recovery and persistence (2010-2013), and stock market shock (2014-2016). However, there is an insignificant correlation during the Global Financial Crisis (2006-2009). Further, we apply the BEKK model as a confirmatory analysis and find the presence of spillover effects between the stock and bond markets in both directions during the following periods: bond market fluctuations, recovery and persistence, and stock market shock. These results suggest that the correlation between the stock and bond markets in China is a time dependent.
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