The effect of economic policy uncertainty on the long-term correlation between U.S. stock and bond markets

Libing Fang, Honghai Yu and Lei Li

Economic Modelling, 2017, vol. 66, issue C, 139-145

Abstract: We investigate the time-varying long-term correlation of U.S. stock and bond markets, as influenced by an economic policy uncertainty (EPU) index based on the modified DCC-MIDAS model. Considering the structural breakpoints of the 1997 Asian financial crisis and the 2008 financial crisis, we extend the model by incorporating dummy variables to adjust the long-term correlation during different periods. The empirical results show that the modified model is more efficient than the baseline model. Moreover, consistent with the flight-to-quality phenomenon, we further find that EPU has a significant negative influence on long-term stock-bond correlation.

Keywords: E60; G10; C32; C52; DCC-MIDAS model; Structural break; Economic policy uncertainty; Long-term correlation (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (57)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999317301311
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:66:y:2017:i:c:p:139-145

DOI: 10.1016/j.econmod.2017.06.007

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().