Flight to quality and implicit guarantee: Evidence from Chinese trust products

In this study, I apply a quantile regression model to investigate how gold returns respond to changes in various financial indicators. The model quantifies the asymmetric response of gold return in the tails of the distribution based on weekly data over the past 30 years. I conducted a statistical test that allows for multiple structural changes and find that the relationship between gold return and some key financial indicators changed three times throughout the sample period. According to my empirical analysis of the whole sample period, I find that: (1) the gold return rises significantly if stock returns fall sharply; (2) it rises as the stock market volatility increases; (3) it also rises when general financial market conditions tighten; (4) gold and crude oil prices generally move toward the same direction; and (5) gold and the US dollar have an almost constant negative correlation. Looking at each sample period, (1) and (2) are remarkable in the period covering the global financial crisis (GFC), suggesting that investors divested from stocks as a risky asset. On the other hand, (3) is a phenomenon observed during the sample period after the GFC, suggesting that it reflects investors’ behavior of flight to quality.

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Dynamic Spillover Effects between the US Stock Volatility and China’s Stock Market Crash Risk: A TVP-VAR Approach

Mathematical Problems in Engineering ◽

10.1155/2021/6616577 ◽

2021 ◽

Vol 2021 ◽

pp. 1-12

Author(s):

Ping Zhang ◽

Jieying Gao ◽

Yanbin Zhang ◽

Te-Wei Wang

Keyword(s):

Stock Market ◽

Spillover Effects ◽

Crash Risk ◽

Short Term ◽

Stock Volatility ◽

Gradual Improvement ◽

Stock Market Crash ◽

Capital Outflow ◽

Flight To Quality ◽

The Us

Due to the increasing linkage of China and the US stock markets today, we constructed a TVP-VAR model to study the dynamic spillover effects between the US stock volatility and China’s stock market crash risk. We found dynamic spillover effects are constantly strengthening between US stock volatility and China’s stock market crash risk: when the US stock volatility increases, China’s stock market crash risk increases. In addition, the gradual improvement of financial market openness in China, the short-term capital outflow from China, and the depreciation of the RMB exchange rate will increase China’s stock market crash risk. And, the impacts of short-term capital outflow from China are more significant. Further, the increase in China’s stock market crash risk will lead to the decline of the US stock volatility, which may be due to the flight to quality.

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