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Dynamic relationship between Stock and Bond returns: A GAS MIDAS copula approach

Hoang Nguyen and Farrukh Javed

Journal of Empirical Finance, 2023, vol. 73, issue C, 272-292

Abstract: Stock and bond are the two most crucial assets for portfolio allocation and risk management. This study proposes generalized autoregressive score mixed frequency data sampling (GAS MIDAS) copula models to analyze the dynamic dependence between stock returns and bond returns. A GAS MIDAS copula decomposes their relationship into a short-term dependence and a long-term dependence. While the long-term dependence is driven by related macro-finance factors using a MIDAS regression, the short-term effect follows a GAS process. Asymmetric dependence at different quantiles is also taken into account. We find that the proposed GAS MIDAS copula models are more effective in optimal portfolio allocation and improve the accuracy in risk management compared to other alternatives.

Keywords: GAS copulas; MIDAS; Asymmetry (search for similar items in EconPapers)
JEL-codes: C32 C52 C58 G11 G12 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.jempfin.2023.07.004

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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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