Constant conditional correlation in a bivariate GARCH model: evidence from the stock markets of China Original Research Article

In this paper we examine the behaviour of stock returns in two emerging markets of China. These are the Shanghai and Shenzhen markets. It is found that both markets suffer from negative mean returns on Monday and Tuesday, but positive returns on Friday. In addition, we employ the bivariate GARCH model of Bollerslev [T. Bollerslev, Review of Economics and Statistics 72 (1990) 498–505] to capture the co-movements of stock returns between the markets. However, the information matrix test statistic does not support the null hypothesis of a constant conditional correlation in the stock returns.