Trends in stock-bond correlations

Harumi Ohmi and Tatsuyoshi Okimoto

Applied Economics, 2016, vol. 48, issue 6, 536-552

Abstract: Previous studies document the existence of long-run trends in comovements in the stock and bond markets. Following these findings, this article examines possible trends in stock-bond return correlations. To this end, we introduce a trend component into a smooth transition regression (STR) model including the multiple transition variables of Aslanidis and Christiansen (2012). The results indicate the existence of significant decreasing trends in stock-bond correlations for many advanced safer countries. In addition, although stock market volatility continues to be an important factor in stock-bond correlations, the short rate and yield spread become only marginally significant once we introduce the trend component. Our out-of-sample analysis also demonstrates that the STR model, including the volatility index and time trend as the transition variables, dominates other models. Furthermore, we find a significant increase in stock-bond correlations for riskier euro countries around the beginning of the euro crisis. Our findings of decreasing and increasing trends in stock-bond correlations can be considered a consequence of the decreasing effects of diversification and more intensive flight-to-quality behaviour that have taken place in recent years and after the euro crisis.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2015.1083088 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Trends in Stock-Bond Correlations (2015)
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:taf:applec:v:48:y:2016:i:6:p:536-552

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2015.1083088

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().