Research On Correlation Of Chinese Stock And Bond Returns Based On Copula Quantile-on-Quantile Approach

With the rapid development of financial market,the market environment has brought great challenges to investors,especially in the decentralized market risk level.Cross-asset class and cross-market allocation are always a way to spread risk.The stock market and the bond market,as two vital components of the product of financial market,occupy the vast majority of the entire financial market,so the correlation between stocks and bonds is particularly important in decentralizing market risks.Moreover,the correlation between stocks and bonds directly affects government and regulatory agency policy making and investor investment decisions.According to the modern portfolio theory,the weaker or even negative correlation between the two types of assets can better disperse the marketization risk.The measurement of the correlation between stocks and debts has become a hot topic in the financial market.The correlation between assets in the financial market usually does not have the characteristics of stability.This time-varying causes the traditional linear correlation coefficient can not effectively describe its correlation.The Copula function has no restrictions on the edge distribution of each asset,the birth of Copula is a good solution to the rapid rise in correlation espically extreme case and Copula can effectively measuring the"tail correlation".This paper uses Copula quantile-quantile regression method to model the correlation structure between stocks and bonds in China.This method has great flexibility and can provide more robust and accurate estimation.For different quantile points,it can reflect the correlation between stocks and bonds in the bull market,bear market and general financial market environment,so it is more flexible.Copula quantile-quantile regression method is used in portfolio management to form a tailor-made asset allocation strategy to meet the needs of investors and to enable financial regulators to have a better understanding of the environment.It is a good reference for providing policy development and market response to policy.