On the stability of stock-bond comovements across market conditions in the Eurozone periphery

Thomas Flavin and Dolores Lagoa-Varela

Global Finance Journal, 2021, vol. 49, issue C

Abstract: We analyze the relationship between returns on equity and long-term government bonds in the crisis-hit Eurozone peripheral economies. In particular, we are interested in the stability of the relationship across differing market conditions and if long-term bonds act as a safe haven for equity investors during periods of financial distress. Employing a Markov-switching vector autoregression model with three regimes, we find that the stock-bond relationship varies across market conditions and across countries. Overall we observe increased comovement during the crisis regimes at the market level, with the relationship between the financial sectors and the domestic sovereign bond being its most important driver across countries.

Keywords: Stock-bond relationship; Eurozone peripheral countries; Financial crisis; Safe haven (search for similar items in EconPapers)
JEL-codes: C32 G01 G11 (search for similar items in EconPapers)
Date: 2021
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Working Paper: On the stability of Stock-bond comovements across market conditions in the Eurozone periphery (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:49:y:2021:i:c:s1044028318303144

DOI: 10.1016/j.gfj.2019.100491

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