Causal slaving of the US treasury bond yield antibubble by the stock market antibubble of August 2000

Wei-Xing Zhou and Didier Sornette

Physica A: Statistical Mechanics and its Applications, 2004, vol. 337, issue 3, 586-608

Abstract: Using the descriptive method of log-periodic power laws (LPPL) based on a theory of behavioral herding, we use a battery of parametric and non-parametric tests to demonstrate the existence of an antibubble in the yields with maturities larger than 1 year since October 2000. The concept of “antibubble” describes the existence of a specific LPPL pattern that is thought to reflect collective herding effects. From the dependence of the parameters of the LPPL formula as a function of yield maturities and using lagged cross-correlation calculations between the S&P 500 and bond yields, we find strong evidence for the following causality: Stock Market → Fed Reserve (Federal funds rate) → short-term yields → long-term yields (as well as a direct and instantaneous influence of the stock market on the long-term yields). Our interpretation is that the FRB is “causally slaved” to the stock market (at least for the studied period), because the later is (taken as) a proxy for the present and future health of the economy.

Keywords: Econophysics; Antibubble; Causality; Yield; Stock market (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (22)

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Working Paper: Causal Slaving of the U.S. Treasury Bond Yield Antibubble by the Stock Market Antibubble of August 2000 (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:337:y:2004:i:3:p:586-608

DOI: 10.1016/j.physa.2004.02.009

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