Structural breaks, dynamic correlations, and hedge and safe havens for stock and foreign exchange markets in Greater China

This study investigates the dynamic relationship and hedging strategy between stock and foreign exchange markets in Greater China for the period 22 July 2005 to 30 November 2015. Using the DCC‐GARCH model with and without structural breaks, the results provide strong evidence of negative time‐varyin...

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Bibliographic Details
Published inWorld economy Vol. 41; no. 10; pp. 2783 - 2803
Main Authors Dong, Xiyong, Yoon, Seong‐Min
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.10.2018
Subjects
American dollar
DCC‐GARCH model
dynamic correlations
Economic analysis
Foreign exchange
Foreign exchange markets
Foreign exchange rates
Greater China
Hedging
Investors
Policy making
Property
Risk
Securities markets
Stochastic models
Stock exchanges
stock markets
structural breaks
China
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Summary:This study investigates the dynamic relationship and hedging strategy between stock and foreign exchange markets in Greater China for the period 22 July 2005 to 30 November 2015. Using the DCC‐GARCH model with and without structural breaks, the results provide strong evidence of negative time‐varying correlations between these two markets in Greater China, consistent with the “stock‐oriented” models of exchange rates. Moreover, adding structural breaks reduces the degree of volatility persistence for all considered markets and can provide more accurate hedge and safe haven properties of the US dollar against Greater China stock markets. The findings have several important implications for portfolio risk managers, international investors and policymakers.
ISSN:0378-5920
1467-9701
DOI:10.1111/twec.12584