Analysis of the Correlation Structure between Stock and Exchange Rate Markets: An Example of China on Asian emerging Markets

摘要

This study investigates the dynamic correlation between stock and exchange rate markets to examine the influences of China stock and exchange rate movements on other Asian emerging countries. We employ the GARCH model, which allows for the conditional correlation structure to be time-varying, to explore the return and volatility transmission mechanism between stock and exchange rate markets among these countries. Our results demonstrate that the China stock market has a greater positive impact on other Asian stock markets. We also find that the exchange rate movements of China have a positive effect upon the exchange rate markets of Singapore, South Korea, and Taiwan, but have no significant influence on the other countries. The test of volatility spillover shows that stock market movements do not affect exchange rate markets, which is a result that does not support Phylaktis and Ravazzolo (2005)’s evidence that stock market movements influence the exchange rate dynamics.