Volatility Spillovers between Equity and Bond Markets: Evidence from G7 and BRICS

Jian Zhang, Dongxiang Zhang (), Juan Wang and Yue Zhang
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Jian Zhang: Department of Finance, Economics and Management School, Wuhan University, Wuhan, China.
Dongxiang Zhang: Department of Finance, Economics and Management School, Wuhan University, Wuhan, China
Juan Wang: Department of Finance, Economics and Management School, Wuhan University, Wuhan, China.
Yue Zhang: Department of Finance, Economics and Management School, Wuhan University, Wuhan, China.

Journal for Economic Forecasting, 2013, issue 4, 205-217

Abstract: This study implies the causality-in-variance test newly developed by Hafner and Herwartz (2006) to investigate the volatility spillovers between domestic equity and bond markets in the G7 and BRICS countries. The empirical result shows that there is ethier unidirectional or bidirectional spillover effect in every developed market and weak evidence for Russia in both directions. In details, there is bidirectional volatility spillovers between the equity and bond markets in France, Brazil and South Africa, and unidirectional spillovers from the bond to the equity in the US, UK and Germany at 1% level of significance. However, no rigorous conclusions could be drawn by the LMGARCH model in the case of Japan, Italy, Canada, India and China. This has important implications for domestic cross-market portfolio allocation and risk management in both developed and emerging markets.

Keywords: volatility spillover; equity market; bond market; causality-in-varince; LM-GARCH (search for similar items in EconPapers)
JEL-codes: C12 C32 G12 G15 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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