Foreign Shocks on Chilean Financial Markets: Spillovers and Comovements Between Bonds and Equity Markets

Marco Morales, Carola Moreno and Camilo Vio

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: The domestic impact of external shocks will depend on the degree of coupling of domestic assets to foreign markets, but also on the spillovers among assets. The covariance between different types of assets could be affected by the new information. Changes in the covariance could come from a stronger rebalancing between stocks and bonds. Therefore, we will analyze four different assets – government bonds, corporate bonds, money market instruments and equity – and study the conditional correlation between them. We find that the corporate bond market tends to increase coupling in turbulent times, while money market decreases. We propose to test international spillovers taking into account a methodology for estimating the conditional mean, variance and covariance on domestic bond and equity markets, while considering that shocks may have asymmetric effects depending if the news are good or bad.

Date: 2014-02
New Economics Papers: this item is included in nep-fmk and nep-ifn
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Journal Article: Foreign Shocks on Chilean Financial Markets: Spillovers and Comovements Between Bond and Equity Markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:724

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