Co-movement of international copper prices, China's economic activity, and stock returns: Structural breaks and volatility dynamics
Global Finance Journal, 2018, vol. 36, issue C, 62-77
This study empirically investigates both causal nexus and time-varying correlations among international copper prices, China's real economic activity, and stock returns from January 1991 to December 2015. Using a cross-correlation function approach with structural breaks and dynamic conditional correlation models, we find, first, significant volatility cross-effects between international copper prices and real economic activity in China. Second, China's past stock returns play a pivotal role in forecasting future volatility in international copper prices, but not vice versa. Third, negative dynamic correlations between copper prices and China's stock returns around the 2008 global financial crisis suggest that a copper asset can hedge the risk of stock investment in China. Our results have important implications for investors, portfolio managers, and Chinese policymakers, who should regulate extreme financial speculation in copper to minimize the impact of excess volatility on the real economy.
Keywords: China; Copper price; Volatility spillover; Cross-correlation approach; Structural breaks; Dynamic conditional correlation (search for similar items in EconPapers)
JEL-codes: G1 Q43 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:36:y:2018:i:c:p:62-77
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