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Constant conditional correlation in a bivariate GARCH model: evidence from the stock markets of China

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  • Tsui, Albert K.
  • Yu, Qiao

Abstract

In this paper we examine the behaviour of stock returns in two emerging markets of China. These are the Shanghai and Shenzhen markets. It is found that both markets suffer from negative mean returns on Monday and Tuesday, but positive returns on Friday. In addition, we employ the bivariate GARCH model of Bollerslev [T. Bollerslev, Review of Economics and Statistics 72 (1990) 498–505] to capture the co-movements of stock returns between the markets. However, the information matrix test statistic does not support the null hypothesis of a constant conditional correlation in the stock returns.

Suggested Citation

  • Tsui, Albert K. & Yu, Qiao, 1999. "Constant conditional correlation in a bivariate GARCH model: evidence from the stock markets of China," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 48(4), pages 503-509.
    • Handle: RePEc:eee:matcom:v:48:y:1999:i:4:p:503-509
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    References listed on IDEAS

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    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
    2. Jeffrey Jaffe & R. Westerfield, "undated". "The Week-End Effect in Common Stock Returns: The International Evidence," Rodney L. White Center for Financial Research Working Papers 3-85, Wharton School Rodney L. White Center for Financial Research.
    3. Jaffe, Jeffrey F & Westerfield, Randolph, 1985. "The Week-End Effect in Common Stock Returns: The International Evidence," Journal of Finance, American Finance Association, vol. 40(2), pages 433-454, June.
    4. Jeffrey Jaffe & R. Westerfield, "undated". "The Week-End Effect in Common Stock Returns: The International Evidence," Rodney L. White Center for Financial Research Working Papers 03-85, Wharton School Rodney L. White Center for Financial Research.
    5. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
    6. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    7. Bera, Anil K & Higgins, Matthew L, 1993. "ARCH Models: Properties, Estimation and Testing," Journal of Economic Surveys, Wiley Blackwell, vol. 7(4), pages 305-366, December.
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