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The relationship between yield curve components and equity sectorial indices: Evidence from China

Zaghum Umar, Imran Yousaf () and David Y. Aharon

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: This paper examines the static and dynamic connectedness (returns and volatility) between the components of the sovereign yield curve (level, slope, curvature) and sectorial equity indices in China. We document a strong connection between these factors, particularly during three periods: the August 2011 stock market crash, the 2015 Chinese stock market crash and the 2018 US-China trade war. Our results show that the level component of the yield curve is a net transmitter of return spillovers, whereas the curvature component of the yield curve is a net transmitter of volatility spillovers. These findings may be useful for portfolio managers and policymakers making decisions regarding portfolio allocations, risk management, and monetary policy.

Keywords: Static spillover; Rolling spillover; Yield curve; Equity sectors; Financial crisis; Trade wars; Connectedness (search for similar items in EconPapers)
JEL-codes: C53 E43 F36 G12 G17 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21000986

DOI: 10.1016/j.pacfin.2021.101591

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