Smooth transition patterns in the realized stock–bond correlation

Nektarios Aslanidis and Charlotte Christiansen

Journal of Empirical Finance, 2012, vol. 19, issue 4, 454-464

Abstract: This paper explores the time variation in the stock–bond correlation using high-frequency data. Gradual transitions between regimes of negative and positive stock–bond correlation are well accommodated by the smooth transition regression (STR) model. We find that the regimes are systematically related to movements in financial and to a minor extent macroeconomic transition variables. In particular, the most informative transition variables are the short rate, the yield spread, and the VIX volatility index. Importantly, both in-sample and out-of-sample evaluation criteria show that multiple transition variable STR specifications considerably outperform single transition variable STR models. Our results are robust to different forecast horizons.

Keywords: Realized stock–bond correlation; Smooth transition regressions; Correlation regimes; VIX index (search for similar items in EconPapers)
JEL-codes: C22 G11 G12 G17 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (30)

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Related works:
Working Paper: Smooth Transition Patterns in the Realized Stock- Bond Correlation (2011)
Working Paper: Smooth Transition Patterns in the Realized Stock Bond Correlation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:19:y:2012:i:4:p:454-464

DOI: 10.1016/j.jempfin.2012.04.005

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