What drives the ‘synchrony’ and ‘asynchrony’ between China's stock and bond markets? An adaptive Lasso-DCC-MIDAS model

Feipeng Zhang, Yilin Zhang and Yang Deng

International Review of Economics & Finance, 2025, vol. 101, issue C

Abstract: Identifying the primary factors driving the interconnectedness between stock and bond markets is critical for portfolio decision-making and risk management. This study proposes an adaptive Lasso-DCC-MIDAS model with multiple explanatory variables. It enables us to investigate the long-term and short-term correlation between different markets, examine the impact of various macroeconomic and financial factors on market comovement and identify the primary drivers. Our empirical findings indicate that during economic booms, the comovement between China's stock and bond markets is strengthened and positive, exhibiting ‘synchronization’. Conversely, during recessions, it is often weakened and negative, showing ‘asynchrony’. Further analysis reveals that the turnover rates and the real effective exchange rate of the stock market are the dominant driving force and these impact changes dynamically with the state of the market. Our empirical findings can not only help us gain a better understanding of the underlying drivers of market dynamics and make more informed investment decisions but also be useful for policymakers in developing macroeconomic policies that promote stability and growth in financial markets.

Keywords: Adaptive Lasso; Multi-factor DCC-MIDAS model; Stock; Market comovement; Bond (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025003697

DOI: 10.1016/j.iref.2025.104206

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