Stock and bond return relations and stock market uncertainty: Evidence from wavelet analysis

Fu-Lai Lin, Sheng-Yung Yang, Terry Marsh and Yu-Fen Chen

International Review of Economics & Finance, 2018, vol. 55, issue C, 285-294

Abstract: This paper adopts continuous wavelet analysis to investigate the time variation features of stock-bond return relations across different frequencies from 1988 to 2014. We also examine whether the time-varying relations can be linked to two dimensions: fundamental economic factors and stock market uncertainty. The empirical results show that the short-term and long-term dependencies between stocks and bonds do vary over time. In addition, the relations between stock and bond returns have positive sign sensitivity to the short rate and the slope of term structure, while their sensitivity to stock market volatility is negative. Moreover, the impact of crises on the long-term stock-bond relation is significantly negative but the impact on short-term relation is significantly positive. Overall, the fundamental economic factors which drive the stock-bond relations do not vary across time frequencies; however, the impacts of crises do vary across the time frequencies. The findings have economic implications to help investors determine their portfolio allocations. Furthermore, these results also help policy makers monitor the financial markets and adjust the macroeconomic policies by observing changes in these state variables.

Keywords: Stock-bond return relations; Stock market uncertainty; Wavelet analysis (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056017305208
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:55:y:2018:i:c:p:285-294

DOI: 10.1016/j.iref.2017.07.013

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().