Time-Varying Comovement of Chinese Stock and Government Bond Markets: Flight to Safe Haven

This article examines the impact of financial market uncertainty on comovement between Chinese government bond and stock markets proxied by realized correlations of the asset returns over the whole sample period 2003Q.2-2016Q.4. We find evidence that a future financial market uncertainty has a negative effect on the comovement between the two markets. This suggests that the flight to safe haven phenomenon remains valid for interdependence of Chinese stock and government bond markets. Our main finding is crucial for joint pricing for stock and bond assets in their portfolios and for stabilizing the financial markets.