International equity and bond market dynamics an asymmetric error correction study of united states, india and brazil

Munawar Sayyad (), Pat Obi () and Kaushik Bhattacharjee ()
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Munawar Sayyad: IFHE (ICFAI Foundation For Higher Education) University, IBS Hyderabad
Pat Obi: Purdue University Northwest
Kaushik Bhattacharjee: IFHE (ICFAI Foundation For Higher Education) University, IBS Hyderabad

Economics Bulletin, 2022, vol. 42, issue 1, 69 - 82

Abstract: Using the recently developed nonlinear autoregressive distributed lag (NARDL) model, this study examines the dynamic linkages between bond and equity markets over an extended period that encompasses the time from March 2016 to November 2020. Financial market variables were obtained for U.S., India, and Brazil, three large economies at different stages of economic development. The target variable is the slope of the yield curve, measured as the yield difference between 10-year and 3-month government bonds. Equity market variables are stock returns and implied volatility. A pre-post examination of the slope shows that the distributional properties of the variables changed markedly over the sample period. However, empirical results confirm cointegration but with significant nonlinearities. Policy recommendations on targeted fiscal intervention and asset allocation are offered.

Keywords: Yield curve; implied volatility; NARDL; Asymmetric cointegration; Causality (search for similar items in EconPapers)
JEL-codes: F3 G1 (search for similar items in EconPapers)
Date: 2022-02-20
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