Structural breaks, dynamic correlations, and hedge and safe havens for stock and foreign exchange markets in Greater China

This study investigates the dynamic relationship and hedging strategy between stock and foreign exchange markets in Greater China for the period 22 July 2005 to 30 November 2015. Using the DCC‐GARCH model with and without structural breaks, the results provide strong evidence of negative time‐varying correlations between these two markets in Greater China, consistent with the “stock‐oriented” models of exchange rates. Moreover, adding structural breaks reduces the degree of volatility persistence for all considered markets and can provide more accurate hedge and safe haven properties of the US dollar against Greater China stock markets. The findings have several important implications for portfolio risk managers, international investors and policymakers.