The stock-bond correlation and macroeconomic conditions: One and a half centuries of evidence
Jian Yang (),
Yinggang Zhou and
Zijun Wang
Journal of Banking & Finance, 2009, vol. 33, issue 4, 670-680
Abstract:
Using monthly stock and bond return data in the past 150 years (1855-2001) for both the US and the UK, this study documents time-varying stock-bond correlation over macroeconomic conditions (the business cycle, the inflation environment and monetary policy stance). There are different patterns of time variation in stock-bond correlations over the business cycle between US and UK, which implies that bonds may be a better hedge against stock market risk and offer more diversification benefits to stock investors in the US than in the UK. Further, there is a general pattern across both the US and the UK during the post-1923 subperiod and during the whole sample period: higher stock-bond correlations tend to follow higher short rates and (to a lesser extent) higher inflation rates.
Keywords: Stock-bond; correlation; Business; cycle; Asymmetry; Smooth; transition; GARCH (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (91)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:33:y:2009:i:4:p:670-680
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