Co-Movement and Interaction Effects across the Monetary, Foreign Exchange and Stock Markets: Evidence from China

This paper investigates the issue of co-movement and interaction among the monetary, foreign exchange and stock markets by employing the data from China’s financial markets. Based on the ICA-EGARCH-M model, we explore the volatility spillover effects so as to illustrate the overall co-movements across financial markets. Furthermore, in order to observe the multi-market dynamic relationship variation process, we calculate the dynamic correlation coefficients with the AG-DCC-MGARCH model. Our findings provide both static and dynamic evidence on the co-movement and interaction effects of financial markets which may lead to the systemic financial risk.