Time-Varying Correlation Between Stock and Government Bond in Asia: Flight-to-Quality

Mahanani Margani(1), Zaafri Ananto Husodo(2),

DOI: https://doi.org/10.15294/ipsr.v7i2.37838


(1) Universitas Indonesia, Indonesia
(2) Universitas Indonesia, Indonesia

Abstract

This study aims to provide an overview of how the relationship between stock and bond market in Asia when a crisis occurs (in this case the 2008 global crisis and the COVID-19 pandemic) using the DCC-GARCH method to prove the flight-to-quality phenomenon in Asia (China, Japan, Indonesia, Singapore, Malaysia, Thailand, and India). The results showed that during the 2008 global crisis, the flight-to-quality phenomenon happened in Thailand where the correlation between stock returns and government bonds in that country became increasingly negative during the crisis period, indicating that there was a shift in investment from stocks to government bonds. In addition, this research also proved that during the COVID-19 pandemic, the flight-to-quality phenomenon was also proven to occur in Malaysia.

Keywords

Flight-to-quality; Time-varying correlation; Stock; Government bond

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