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Determinants of stock-bond market comovement in the Eurozone under model uncertainty

Vasiliki Skintzi ()

International Review of Financial Analysis, 2019, vol. 61, issue C, 20-28

Abstract: This paper examines the dynamic relationship between stock and bond returns in eleven Eurozone countries during the last seventeen years. The literature so far reports heterogeneous results with respect to the important determinants of the stock-bond relationship. To deal with model uncertainty we employ a Bayesian model averaging technique and examine various macroeconomic and financial variables which are likely to influence stock-bond comovement. Bond and stock market uncertainty, interest rate, inflation and state of the economy are important determinants of cross-asset correlations. Divergence in the dynamic patterns of stock-bond comovement as well as on the effect of economic variables on this comovement is reported during crisis periods and between different European regions. Our results are of high relevance for investment strategies as well as for policy decisions in the European context.

Keywords: Stock-bond correlation; Bayesian model averaging; Financial crisis; Monetary union (search for similar items in EconPapers)
JEL-codes: C58 E44 G15 C11 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Determinants of stock-bond market comovement in the Eurozone under model uncertainty (2017) Downloads
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DOI: 10.1016/j.irfa.2018.12.005

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