Quantiles of the realized stock–bond correlation and links to the macroeconomy

Aslanidis, Nektarios; Christiansen, Charlotte

doi:10.1016/j.jempfin.2014.03.007

Cited by 49 publications

(21 citation statements)

References 31 publications

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“…Similarly to Rua (2010), stock and bond price indices are converted to the monthly returns by taking the first difference of the natural log for each stock and bond price index. The use of monthly frequencies is commonly used in the literature (see e.g., Kim and In, 2007;Aslanidis and Christiansen, 2014) and is due to the fact that data on macroeconomic factors used in further analysis are available only on a monthly level. The source of the data is Thomson Reuters Datastream.…”

Section: Stock and Bond Market Returnsmentioning

confidence: 99%

“…In contrast, Baele et al (2010) argue that macroeconomic factors play only a minor role in explaining stock-bond correlations in the US market. A more recent study by Aslanidis and Christiansen (2014) provides new insights into the role of macroeconomic fundamentals in explaining stock-bond correlations. They find that macroeconomic factors have only little explanatory power when the stock-bond correlation is largely positive; but when the stock-bond correlation is largely negative, then macroeconomic fundamentals are most useful explanatory variables.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Impact of financial market uncertainty and macroeconomic factors on stock–bond correlation in emerging markets

Dimic

Kiviaho

Piljak

et al. 2016

Research in International Business and Finance

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Section: Stock and Bond Market Returnsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Impact of financial market uncertainty and macroeconomic factors on stock–bond correlation in emerging markets

Dimic

Kiviaho

Piljak

et al. 2016

Research in International Business and Finance

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“…Yang, Zhou, and Wang (2009), by using a large time span that covers 150 years of data at a monthly frequency, recognize that higher stock–bond correlations tend to follow higher short rates or higher inflation rates. Aslanidis and Christiansen (2014) find that macroeconomic fundamentals are the most useful explanatory variables when the stock–bond correlation is largely negative, while Dimic et al (2016) argue that the most important factor influencing stock–bond correlation in the short‐term is the monetary policy; whereas in the long‐term, inflation and stock market uncertainty are the major drivers. Christopher, Kim, and Wu (2012) stress the importance of sovereign credit ratings on time‐varying stock and bond market correlations, while Chiang et al (2015) find evidence that stock–bond correlations are negatively correlated with stock market uncertainty, as measured by the conditional variance and the implied volatility of the S&P 500 index, but positively related to bond market uncertainty.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic correlations and volatility linkages between stocks and sukuk: Evidence from international markets

et al. 2016

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a b s t r a c t a r t i c l e i n f oAvailable online xxxxAn understanding of volatility and co-movements in financial markets is important for portfolio allocation and risk management practices. The current financial crisis caused a shrinkage in values of most assets, an increased volatility and a threat to the survival of several institutional investors. Managing risks and returns within the classic portfolio theory, when correlations across securities soar, is increasingly challenging. In this paper, we investigate the volatility behavior and the co-movements between sukuk and international stock indexes. Symmetric multivariate GARCH models with dynamic conditional correlations (DCC) were estimated under Student-t distribution. We provide evidence of high correlations between sukuk and US and EU stock markets, without finding the well-known flight to quality behavior affecting Islamic bonds. We also show that volatility linkages between sukuk and regional market indexes are higher during financial crisis. We argue that investors could obtain diversification benefits including sukuk in a well-diversified equity portfolio, given their lower volatility compared to equity. But higher volatility linkages and dynamic correlations during financial crises show that they are hybrid instruments between bonds and equity. Our findings are relevant for institutional investors and asset managers that include Islamic bonds in a diversified portfolio.

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“…This approach is similar in spirit to earlier work on the stock-bond correlation quantiles by Aslanidis and Christiansen (2014). Another important di¤erence to Baele, Bekaert, Inghelbrecht, and Wei (2015) is that we also investigate the risk-return trade-o¤ in stocks accounting for the ‡ight-tosafety.…”

Section: Introductionmentioning

confidence: 91%

Flight to Safety from European Stock Markets

2017

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This paper investigates ‡ight-to-safety from stocks to bonds in seven European markets. We use quantile regressions to identify ‡ight-to-safety episodes. The simple risk-return trade-o¤ on the stock markets is negative which is caused by ‡ight-to-safety episodes: During normal periods, the risk-return trade-o¤ is positive and during ‡ight-to-safety episodes it is negative. The e¤ects of ‡ight-to-safety episodes on the risk-return trade-o¤ are qualitatively similar for own country ‡ight-to-safety episodes, for ‡ight from own country stock market to the US bond market, and for US ‡ight-to-safety. The strength of the trade-o¤ is strongest for own country ‡ight-to-safety episodes. The risk-return trade-o¤ is not signi…cantly in ‡uenced by recession periods or the recent sovereign debt crisis. The main results hold for ‡ight to gold instead of to bonds.

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Quantiles of the realized stock–bond correlation and links to the macroeconomy

Cited by 49 publications

References 31 publications

Impact of financial market uncertainty and macroeconomic factors on stock–bond correlation in emerging markets

Impact of financial market uncertainty and macroeconomic factors on stock–bond correlation in emerging markets

Dynamic correlations and volatility linkages between stocks and sukuk: Evidence from international markets

Flight to Safety from European Stock Markets

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