Importance Currently, the existing economic situation abruptly made the Russian Ministry of Finance borrow funds in the domestic market through the federal loan bonds. The research examines the Russian markets of stocks and government bonds. Objectives The research investigates the relationship of the current trends in the Russian markets of stocks and government bonds by analyzing what specifically makes this relationship so tight, and verifies hypotheses stating that the relationship implies effects of spillover, contagion and pursuit of quality. Methods The research draws upon methods of the rolling correlation coefficient and dynamic conditional correlation for multivariate GARCH-models. Both methods are used to consider a correlation of trends in the Russian market of stocks and government bonds that change through time. Results Relying upon estimates of the rolling correlation coefficients and two-dimensional DCC-GARCH model of dynamic correlations for the markets in question, we demonstrated that their relationship is unstable in terms of time, with only two of three effects being present. Conclusions and Relevance The relationship between markets of stocks and government bonds changes through time and gets more intensive due to expectations of positive changes in the Russian economy. In addition, the relationship has a mutual spillover effect, i.e. two markets and their trends influence one another, and an effect of quality pursuits.
Keywords: Russian stock market, government bonds, rolling correlation coefficient, DCC-GARCH mode
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