Modeling dynamic conditional correlations with leverage effects and volatility spillover effects: Evidence from the Chinese and US stock markets affected by the recent trade friction |
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Institution: | 1. School of Economics, Guangxi University, Nanning, Guangxi 530004, China;2. School of Business Administration, South China University of Technology, Guangzhou, Guangdong 510641, China;1. School of Economics and Management, University of Chinese Academy of Science, Beijing 100190, China;2. Research Center on Fictitious Economy & Data Science, Chinese Academy of Science, Beijing 100190, China;3. Key Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Science, Beijing 100190, China;4. Lee Kong Chian School of Business, Singapore Management University, 178899, Singapore;1. Montpellier Business School, France;2. South Ural State University, Russia;3. Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh, Saudi Arabia;4. University of Sfax, Higher School of Business Administration, Sfax, Tunisia |
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Abstract: | In this article, we investigate the dynamic conditional correlations (DCCs) with leverage effects and volatility spillover effects that consider time difference and long memory of returns, between the Chinese and US stock markets, in the Sino-US trade friction and previous stable periods. The widespread belief that the developed markets dominate the emerging markets in stock market interactions is challenged by our findings that both the mean and volatility spillovers are bidirectional. We do find that most of the shocks to these DCCs between the two stock markets are symmetric, and all the symmetric shocks to these DCCs are highly persistent between Shanghai’s trading return and S&P 500′s trading or overnight return, however all the shocks to these DCCs are short-lived between S&P 500′s trading return and Shanghai’s trading or overnight return. We also find clear evidence that the DCC between Shanghai’s trading return and S&P 500′s overnight return has a downward trend with a structural break, perhaps due to the “America First” policy, after which it rebounds and fluctuates sharply in the middle and later periods of trade friction. These findings have important implications for investors to pursue profits. |
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Keywords: | Dynamic conditional correlation Spillover effect Leverage effect Return long memory Time difference Sino-US trade friction C51 G15 G14 G11 |
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