Macroeconomic expectations and the time-varying stock-bond correlation: international evidence

Christian Conrad and Karin Loch

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: We explain the time-varying correlation between stock and bond returns by survey expectations on the future macroeconomic development. A modified DCC-MIDAS specification allows us to relate daily changes in the correlation to monthly expectations data. For a cross-section of countries, we show that the stock-bond correlation is mainly determined by expectations regarding the future course of monetary policy as well as stress in financial markets. From a European perspective, the asymmetry in the response of the stock-bond correlation to heightened stock market volatility in the UK, Germany and France on the one hand, and Italy on the other hand is of high policy relevance.

JEL-codes: C32 C58 E44 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145530

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