Common Shocks in Stocks and Bonds

Anna Cieslak and Hao Pang

No 28184, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose an approach to identifying economic shocks (monetary, growth, and risk-premium news) from stock returns and Treasury yield changes, which allows us to study the drivers of asset prices at a daily frequency since the early 1980s. We apply the identification to examine investors’ responses to news from the Fed and key macro announcements. We uncover two risk-premium shocks—time-varying compensation for discount-rate and cash-flow news—which have distinct effects on stocks and bonds. Since the mid-1990s, the Fed-induced reductions in both risk premium sources have generated high average stock returns but an ambiguous response in bonds on FOMC days.

JEL-codes: E43 E44 G12 G14 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-fmk and nep-mac
Note: AP ME
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Citations: View citations in EconPapers (10)

Published as Anna Cieslak & Hao Pang, 2021. "Common shocks in stocks and bonds," Journal of Financial Economics, vol 142(2), pages 880-904.

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