The Research On Correlation Between The Stock Market’ And Ond Market’ Returns In China Based On The Copula Model

The portfolio of stocks and bonds is very traditional investment strategy in the securities investment fields. The stock market and bond market attract a large number of investors because of their huge capacity and different risk. A lot of studies about correlation between the stock market’and bond market’returns has been made abroad. But relevant research faces a certain difficulty such as index and data acquisition in China. With the development of China’s financial market, the relevant research has increased in recent years. So the study about correlation between the stock market’and bond market’returns has been an important thing. There are some reasons. First of all, more and more individual investors will enter the securities market with the increase of income. The study can give them a reference. Second, fund managers can transfer fund to avoid risk when the market volatility increases. Third, the study contributes to making a price for financial derivatives. Last but not least, the government can make policy about the financial market depend on the study.This paper is the study about correlation between the stock market’and bond market’returns based on Copula model, in foundation of the domestic and foreign research. This paper reviews policy changes of the Chinese stock and bond market, and introduces the current situation of them. In the part of empirical research, this paper studies the correlation between the stock market’and bond market’returns based on Copula-GARCH model and compares the constant and time-varying Copula model. At last, this paper analyzes the results and puts forward some policy suggestions.The authors found, Clayton Copula is the best model of the relevant constant Copula models. Through the correlation parameter analysis, the correlation between the stock market’and bond market’returns is weak. The result of time-varying Copula model analysis is better than constant Copula model. In the analysis of SJC Copula model simulation, the low tail correlation is obvious but the up tail correlation is weak.The innovation of this paper lies in some aspects. First, this paper use Copula model, which can better capture non-normal and asymmetric information. And it studies the time-varying Copula model and analyzes the tail correlation of the returns. Deficiency of this paper is the data selection for there is truncation of the data, which may produce a certain error. In addition, the institutional variable is important for the stock and bond market. There is a lot of literature make study by introducing a virtual variable method, but they are not sufficient. So how to measure the institutional variable is a key improvement direction in the future.