Dynamical Volatility and Correlation among US Stock and Treasury Bond Cash and Futures Markets in Presence of Financial Crisis: A Copula Approach

Hsiang-Hsi Liu, Teng-Kun Wang and Weny Li

Research in International Business and Finance, 2019, vol. 48, issue C, 381-396

Abstract: The main purpose of this study is to investigate the dynamic interrelationships among US stock, treasure bond cash and futures markets. To achieve this goal, the VEC copula GJR-GARCH-skewed-t model is formulated to detect these dynamic interactions and their corresponding tail dependence structure. Meanwhile, we also discuss the interactions and contagion effects among these three markets with consideration of two special events such as the subprime mortgage and global financial crisis. By using the VEC copula GJR-GARCH-skewed-t model, this study analyzes the dependence structure and calculates the correlation coefficients between stock-bond cash, stock-bond futures and bond cash and futures during the crisis, and also compared to before and after the crisis event. The empirical results verify that during the crisis events, the correlation coefficients between stock-bond cash and stock-bond futures markets have increased, meanwhile the correlation coefficients between bond cash-futures markets have decreased. The results further point out that the return and volatility correlations among the three markets occur from not just fundamental co-movements, but are also affected by the excess propagation of shocks as contagion effect from the occurrence of negative shocks from financial crisis events.

Keywords: Copula Function; Subprime Mortgage Crisis; Financial Tsunami; Treasury Bond Cash and Futures; Contagion Effect; Dependence Structure; VEC GJR-GARCH-Skewed-t (search for similar items in EconPapers)
JEL-codes: F37 G15 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:48:y:2019:i:c:p:381-396

DOI: 10.1016/j.ribaf.2019.02.002

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