Within the five major financial asset classes in China i.e. stocks, real estate, bonds, commodity futures and foreign exchange which are the ‘dogs’ and which the ‘tails’, or, who wags whom?
Researchers Kim Hang Low from the National University of Singapore and Xiaoxia Zhou of the Shanghai University of Finance and Economics looked at data from July 2005 to November 2017 to see if they could find the answer.
The period is a good one to look for patterns in as it contains the major shocks of the global financial crisis, the 2011 mini-melt and the 2015~2016 stock market collapse and the results of the researcher’s findings should be of interest to policy makers and portfolio managers alike.
It’s a short paper and so, for a welcome change, is the conclusion. Commodity futures are the largest net senders of shocks, followed by stocks and foreign exchange. Bonds and real estate don’t send shocks, instead they’re likely, usually, on the receiving end of messages.
For investors the message is clear. Keep an eye out in future for turbulence in commodity prices in China, it’ll most likely be followed by bumpiness in other asset classes.
You can access the paper in full via this link Integration in China’s Financial Markets.
Happy Sunday.