Smooth Transition Patterns in the Realized Stock Bond Correlation

Nektarios Aslanidis () and Charlotte Christiansen

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper re-examines the joint distribution of equity and bond returns using high frequency data. In particular, we analyze the weekly realized stock bond correlation calculated from 5-minute returns of the futures prices of the S&P 500 and the 10-year Treasury Note. A potentially gradual transition in the realized correlation is accommodated by regime switching smooth transition regressions. The regimes are defined by the VIX/VXO volatility index and the model includes additional economic and financial explanatory variables. The empirical results show that the smooth transition model has a better fit than a linear model at forecasting in sample, whereas the linear model is more accurate for out-of-sample forecasting. It is also shown that it is important to account for differences between positive and negative realized stock bond correlations.

Keywords: realized correlation; smooth transition regressions; stock bond correlation; VIX index (search for similar items in EconPapers)
JEL-codes: C22 G11 G17 (search for similar items in EconPapers)
Pages: 25
Date: 2010-04-26
New Economics Papers: this item is included in nep-fmk, nep-for and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://repec.econ.au.dk/repec/creates/rp/10/rp10_15.pdf (application/pdf)

Related works:
Journal Article: Smooth transition patterns in the realized stock–bond correlation (2012)
Working Paper: Smooth Transition Patterns in the Realized Stock- Bond Correlation (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-15

Access Statistics for this paper

More papers in CREATES Research Papers from Department of Economics and Business Economics, Aarhus University
Bibliographic data for series maintained by ().