Empirical Study On The Dependence Structure Between The Foreign Exchange Stock And Bond Markets In China

On August 11,2015,the People’s Bank of China announced the adjustment of the quotation method for the CNY to the US dollar,opening a new situation in the internationalization of the CNY and the opening of China’s financial market.However,the "811 Exchange Rate Regime Reform" is a double-edged sword.On the one hand,it helps to reduce the administrative intervention of the exchange rate and increase the flexibility of the exchange rate.On the other hand,it may face huge financial risks.For example,Japan has been economic stagnation after signing the "Plaza Agreement".Therefore,in the process of gradually promoting the CNY marketization,it has great research value of analyzing whether China can still maintain the stable and healthy development of the financial market or not.The dependent structures of the rate of return between financial markets are the theoretical basis for risk avoidance.The reaction of financial market participants to the economic situation can be reflected by studying the dependence changes between financial markets.This paper studies the changes in the structure of the foreign exchange market,the stock market and the bond market before and after the "811 Exchange Rate Regime Reform" in China.It has great significance to prevent risks,maintain financial stability and judge the implementation of policies.Based on the previous research results and normative analysis,this paper finds that the exchange rate system can affect the dependence structure between the foreign exchange market,the stock market and the bond market,while the dependent structure mainly manifests the three characteristics of dynamic time-varying,tail nonlinearity and asymmetry.And the GARCH-Copula model can well fit the dependence structure between financial markets.Therefore,based on the classical theory of currency market,stock market and bond market dependence and the internal mechanism of price transmission,this paper selects the central parity of RMB against the US dollar from January 1,2012 to March 13,2019,and the Shanghai and Shenzhen 300 Index and China Bond.The daily data of the comprehensive index is used as a research sample.The GJR-GARCH-Copula model is used to empirically test the overall dynamic dependence,tail dependence and asymmetric dependence of China’s foreign exchange market,stock market and bond market.The research results show that after the “811 Exchange Rate Regime Reform”,the overall dynamic dependence between China’s foreign exchange market and the stock market is significantly reduced,and the overall dynamic dependence between the stock market and the bond market is reduced but not significant,indicating that the overall risk dispersion effect between China’s financial markets is enhanced;After the 811 exchange rate regime Reform reform,the tail dependence between China’s foreign exchange market and the stock market and between the stock market and the bond market weakened,indicating that the extreme risk dispersion effect between China’s financial markets increased;and after the “811 Exchange Rate Regime Reform”,the asymmetric relationship between China’s foreign exchange market and the stock market.Changes may have an impact on actual investment decisions.Generally speaking,in the process of promoting the internationalization of RMB marketization,China’s financial market dependence has declined,the risk of diversification has increased,and the stable and healthy development of the financial market has been maintained.However,the supervision of financial markets must be strengthened.The conclusions of this paper not only provide investors with asset management basis,but also help financial regulatory authorities to have a prior judgment on market response when formulating policies.