Quantile dependence between the stock, bond and foreign exchange markets – Evidence from the UK
Hamid Raza and
The Quarterly Review of Economics and Finance, 2018, vol. 69, issue C, 286-296
In the wake of Brexit, this paper aims to provide a measure for the quantile dependence amongst different financial assets – bond, stock, and currency – within the UK market and their cross-border linkages with the European equity market. We implement a nonparametric estimation method for both the tail and quantile dependence parameters on weekly data over the period 1989–2016 using copula. Our results suggest that the contagion effects between stock and currency markets are limited, even under extreme fluctuations. We also find a weak comovement between currency and bond markets, however, evidence of asymmetry is found in the dependence structure, possibly due to the ‘risk-reward’ scenario of international investors. Finally, our results indicate a weak dependence between stock returns and bond yields, possibly due to the low-yielding gilt and the thirst for income, pushing investors to diversify globally into other financial markets.
Keywords: Quantile dependence; Copula; Nonparametric estimation; Asymmetric dependence (search for similar items in EconPapers)
JEL-codes: C22 G12 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:69:y:2018:i:c:p:286-296
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