This paper examines co-movement between stock returns and changes in 10-year government bond yields as well as flight-to-quality behaviour in G7 countries. We conduct the wavelet squared coherence analysis to explore the dynamics in both time and frequency domain. Our results provide evidence of positive co-movements, which vary over time and across investment horizon. The higher co-movement is found to be more concentrated in the lower frequency bands. We further analyse the dynamic nature of the scale-dependent wavelet correlations and find that the correlations are highly volatile and significantly increase across different time scales during the episodes of equity market turbulence. The increase in correlations reflects flights from stocks to safer bond investments as a result of dramatic changes in investor sentiment and risk aversion at times of market stress. equal to the present value of all projected cash flows discounted at the appropriate discount rate. 1 Interest rates generally affect stock prices via two main channels. First, interest rate changes directly influence the discount rate in standard stock valuation models. Second, variations in interest rates impact cost of financing and hence significantly change expectations about cash flows. In other words, the rising cost of borrowing decreases the expected future cash flow, causing stock price to fall. Therefore, movements in interest rates may have a negative influence on stock prices. In this regard, bond yield variations also affect tactical portfolio allocation strategies which are closely followed for an efficient rebalancing between risk and return in order to impede the catastrophic effects of unanticipated changes in economic expectations.As a result of financial market integration, crises are transmitted from one economy (or asset) to another easily, becoming an epidemic. 2 This situation makes international diversification inefficacious in the presence of contagion at times of economic turmoil. Consequently, financial market participants are forced to avail themselves of different asset classes for diversification benefits. The phenomenon called as 'flight-to-quality' enables investors to redesign their portfolios towards less risky assets at times of distress. More commonly, bonds are viewed as quality assets against stocks. Hartmann et al. (2004) suggest that 'flight-to-quality is about as frequent as simultaneous crashes of stock and bond markets'. One of the most comprehensive definitions of 'flight-to-quality' (FTQ) phenomenon comes from Baur and Lucey (2009). 3 They advocate that the co-movements between stock and bond returns decline during stock market plunges. Investors flee from stocks to bonds in order to compensate the losses incurred in the equity markets at times of adverse stock market conditions. By contrast, they attribute the 'flightfrom-quality' to the decreasing co-movements in bullish market episodes. In this case, investors shift their holdings from bonds to stocks to exploit the potential profits from the rising equ...

Higher media coverage and stronger investor interest in cryptocurrency market may create closer linkages with traditional assets, leading to deteriorated diversification benefits. Cryptocurrencies have recently emerged as an alternative digital asset class; however, very little is known about their portfolio performances. In this study, we investigate the time‐varying investment benefits of cryptocurrencies for stock portfolios using a correlation‐based conditional diversification benefits (CDB) measure. We construct six portfolios consisting of cryptocurrencies, developed and emerging equity markets and find that the time‐varying correlations between cryptocurrencies and stock markets are generally low. However, the level of correlations significantly increases in turbulent periods, such as Brexit referendum and Coincheck hack. The dynamic CDB measures suggest that adding cryptocurrencies to equity market portfolios enhances portfolio diversification; however, the benefits of diversification have diminished after late 2017. Our results offer significant insights and potential implications for market participants.

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