An econometric model of nonlinear dynamics in the joint distribution of stock and bond returns

Allan Timmermann and Massimo Guidolin

Journal of Applied Econometrics, 2006, vol. 21, issue 1, 1-22

Abstract: This paper considers a variety of econometric models for the joint distribution of US stock and bond returns in the presence of regime switching dynamics. While simple two- or three-state models capture the univariate dynamics in bond and stock returns, a more complicated four-state model with regimes characterized as crash, slow growth, bull and recovery states is required to capture their joint distribution. The transition probability matrix of this model has a very particular form. Exits from the crash state are almost always to the recovery state and occur with close to 50% chance, suggesting a bounce-back effect from the crash to the recovery state. Copyright © 2006 John Wiley & Sons, Ltd.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (159)

Downloads: (external link)
http://hdl.handle.net/10.1002/jae.824 Link to full text; subscription required (text/html)
http://qed.econ.queensu.ca:80/jae/2006-v21.1/ Supporting data files and programs (text/html)

Related works:
Journal Article: An econometric model of nonlinear dynamics in the joint distribution of stock and bond returns (2006)
Working Paper: An econometric model of nonlinear dynamics in the joint distribution of stock and bond returns (2005)
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:jae:japmet:v:21:y:2006:i:1:p:1-22

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

DOI: 10.1002/jae.824

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().