Application Of Multivariate GARCH-MIDAS Model In Stock And Bond Markets

Stock market and bond market are two important parts of China's capital markets.Having a knowledge of the capital markets' volatility and the correlation between markets as well as the relevant factors plays a particularly important role in the investment portfolio,optimal allocation of assets and risk management.In particular,the national debt is considered as the safest investment product,and corporate debt has become an important way for corporate financing.Hence,it's of great significance to study the volatility of Treasury bond and corporate bond market.The article mainly use MIDAS technology to carry out the empirical research from the following three aspects.Firstly,we use the GARCH-MIDAS model to study the long-term Treasury bond market volatility depend on the macroeconomic fundamentals.The results show that the realized volatility of Treasury bond market and the volatility of the macroeconomic consistent index are both positively related to the long-term volatility while the level of macroeconomic consistent index have a negative one.Afterwards,we analyze the dynamic feature of the long-term and short-term volatility.As a result,we find that the long-term volatility satisfies the AR model,while the short-term volatility satisfies the ARMAGARCH model,which is the reflection of real-time information in the volatility.Secondly,it's of great significance to study the impact of China's economic policy uncertainty on the long-term component of corporate bond volatility by applying the GARCH-MIDAS model,because corporate bond is sensitive to the economic policy.The empirical results show that the level and volatility of the economic policy uncertainty are positively correlated with corporate bond volatility,as well as the realized volatility of corporate bond market.Thirdly,we show the long-term correlation between stock and Treasury bond depend on macroeconomic variables,using the modified bivariate DCC-MIDAS model.The research shows that the economic policy uncertainty,the inflation,the purchasing managers' index and the one-year term deposit interest rate are all the influence factors of the long-term correlation between stock and Treasury bond markets.Especially,these macroeconomic variables are all negatively related to the long-term correlation.