Research on dynamic correlation based on stochastic time-varying beta and stochastic volatility

This research used monthly returns of Chinese industry sectors that capture China economic status to investigate the relationship between the return of individual industry indices and a market portfolio. To understand characteristics of the relationships and their response to the presence of market fluctuation, this study examined both the impact from good and bad news. Factors like market value and market capitalization were incorporated to capture investors' expectation towards individual industries. These factors are essential as they classify industries into popular ones that take dominant position and unpopular ones that take less dominant position of China's stock market.