The stock-bond nexus and investors’ behavior in mature and emerging markets

Refk Selmi, Rangan Gupta, Christos Kollias and Stephanos Papadamou

Studies in Economics and Finance, 2019, vol. 38, issue 3, 562-582

Abstract: Purpose - Portfolio construction and diversification is a prominent challenge for investors. It reflects market agents’ behavior and response to market conditions. This paper aims to investigate the stock-bond nexus in the case of two emerging and two mature markets, India, South Africa, the UK and the USA, using long-term historical monthly data. Design/methodology/approach - To address the issue at hand, copula quantile-on-quantile regression (C-QQR) is used to model the correlation structure. Although this technique is driven by copula-based quantile regression model, it retains more flexibility and delivers more robust and accurate estimates. Findings - Results suggest that there is substantial heterogeneity in the bond-stock returns correlation across the countries under study point to different investors’ behavior in the four markets examined. Additionally, the findings reported herein suggest that using C-QQR in portfolio management can enable the formation of tailored response strategies, adapted to the needs and preferences of investors and traders. Originality/value - To the best of the authors’ knowledge, no previous study has addressed in a comparative setting the stock-bond nexus for the four countries used here using long-term historical data that cover the periods 1920:08-2017:02, 1910:01-2017:02, 1933:01-2017:02 and 1791:09-2017:02 for India, South Africa, the UK and the USA, respectively.

Keywords: Copula; Quantile regression; Stock-bond nexus (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-08-2017-0224

DOI: 10.1108/SEF-08-2017-0224

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