Macroeconomic determinants of the long-term correlation between stock and exchange rate markets in China: A DCC-MIDAS-X approach considering structural breaks

Youlin Xiong, Jun Shen, Seong-Min Yoon and Xiyong Dong

Finance Research Letters, 2024, vol. 61, issue C

Abstract: Owing to the liberalisation of financial markets, the impact of international capital flows on the Chinese stock market has become substantial. This study investigates the effects of economic policy uncertainty (EPU), geopolitical risk (GPR), consumer sentiment (CCI), macroeconomic fundamentals (MECI), and money supply (M2) on the correlations between the stock and exchange rate markets. The negative correlation between these two markets has become more pronounced in recent years. Moreover, EPU, GPR, CCI, and MECI negatively impact long-term stock-exchange rate correlations, while M2 has a positive impact. Portfolios of stock-exchange rates effectively reduce risk, especially when considering structural breaks.

Keywords: Stock market; Exchange rate; Structural break; Hedging effectiveness; DCC-MIDAS-X (search for similar items in EconPapers)
JEL-codes: C58 E41 F31 G11 G15 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:61:y:2024:i:c:s1544612324000503

DOI: 10.1016/j.frl.2024.105020

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