Bond Market volatility compared with stock market volatility: Evidence from the UK

R Johnson () and P Young
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R Johnson: Senior Vice President, Association for Investment Management and Research
P Young: Vice President in the Curriculum and Examinations department of the Association for Investment Management and Research

Journal of Asset Management, 2002, vol. 3, issue 2, No 2, 111 pages

Abstract: Abstract The present study examines bond market volatility and stock market volatility in the UK. Because of the significant impact that bond market volatility has been shown to have on yield spreads and security values, it is important for investors in the global marketplace to be informed of the volatility patterns in these markets as well as the relative volatility of the bond market to the stock market. While previous researchers have found that volatility in the US bond market is increasing relative to stock market volatility, we find that the same cannot be said for the UK markets. In addition, the lack of a trend in both the ratio of bond-stock standard deviations and in correlations between stocks and bonds indicates that the effectiveness of bonds as diversification vehicles in the UK has not declined over time as it has in the US. This finding has implications for portfolio asset allocation decisions for global investors. The results of this study indicate that it is dangerous to assume that trends observed in the US market are also present in other developed markets.

Keywords: stock market volatility; bond market volatility; correlation; asset allocation (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1057/palgrave.jam.2240069

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