Sign and Quantiles of the Realized Stock-Bond Correlation

Nektarios Aslanidis () and Charlotte Christiansen

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

Abstract: We scrutinize the monthly realized stock-bond correlation based upon high frequency returns. In particular, we use a probit model to track the dynamics of the sign of the correlation relative to its various economic forces. The sign is predictable to a large extent with bond market liquidity being the most important variable. Moreover, stock market volatility, inflation uncertainty, short rate volatility, and bond volatility have significant effects upon the sign. In addition, we use quantile regressions to pin down the systematic variation of the extreme tails of the realized stock-bond correlation over its economic determinants. We document that the correlation behaves di¤erently when it is large negative (0.10 quantile) as opposed to when it is large positive (0.90 quantile). Nevertheless, the empirical findings are only partially robust to using other, possibly less precise, measures of the stock-bond correlation.

Keywords: Realized stock-bond correlation; Sign; Binary models; Quantile regressions (search for similar items in EconPapers)
JEL-codes: C21 C22 C25 G10 G11 G12 (search for similar items in EconPapers)
Pages: 26
Date: 2010-08-31
New Economics Papers: this item is included in nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-55

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