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An empirical analysis of dynamic relationship between stock market and bond market based on information shocks

An empirical analysis of dynamic relationship between stock market and bond market based on... Purpose – The purpose of this paper is to empirically analyze the dynamic relationship between stock market and bond market based on the effect of different information shocks. Design/methodology/approach – This paper decomposes the information of stock market and bond market into public information and private information. The characteristics of response of stock market and bond market to the information shocks are examined by SVAR model and modified BEKK model. Findings – The study shows that the information shocks in financial market yield not only the effect on linear asset return but also the effect on nonlinear asset volatility. The public information mainly produces a short effect of return while the private information mainly produces a permanent effect on volume. The interactive relation between stock market and bond market is mainly reliant on the effect of the information shock volatility to market return volatility. Originality/value – The paper empirically analyzes the influence characteristics of different information shocks, which has some reference value not only for deeply understanding the market microstructure but also for improving the construction of various capital markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

An empirical analysis of dynamic relationship between stock market and bond market based on information shocks

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Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
2044-1398
DOI
10.1108/20441391211231042
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to empirically analyze the dynamic relationship between stock market and bond market based on the effect of different information shocks. Design/methodology/approach – This paper decomposes the information of stock market and bond market into public information and private information. The characteristics of response of stock market and bond market to the information shocks are examined by SVAR model and modified BEKK model. Findings – The study shows that the information shocks in financial market yield not only the effect on linear asset return but also the effect on nonlinear asset volatility. The public information mainly produces a short effect of return while the private information mainly produces a permanent effect on volume. The interactive relation between stock market and bond market is mainly reliant on the effect of the information shock volatility to market return volatility. Originality/value – The paper empirically analyzes the influence characteristics of different information shocks, which has some reference value not only for deeply understanding the market microstructure but also for improving the construction of various capital markets.

Journal

China Finance Review International – Emerald Publishing

Published: Jun 8, 2012

Keywords: Stock markets; Bonds; Information shocks; Securities market; SVAR model; BEKK model

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