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

Qunxing Pan, Xiaowen Mei and Tianqing Gao

The North American Journal of Economics and Finance, 2022, vol. 59, issue C

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.

Keywords: Dynamic conditional correlation; Spillover effect; Leverage effect; Return long memory; Time difference; Sino-US trade friction (search for similar items in EconPapers)
JEL-codes: C51 G11 G14 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:59:y:2022:i:c:s1062940821001947

DOI: 10.1016/j.najef.2021.101591

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