Regime Shifts in the Stock–Bond Relation in Australia

Garry Hobbes (), Frewen Lam () and Geoffrey F. Loudon ()
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Garry Hobbes: Department of Accounting and Finance, Macquarie University, Sydney, NSW, 2109, Australia
Frewen Lam: Macquarie Funds Management, 20 Bond Street, Sydney, NSW, 2000, Australia
Geoffrey F. Loudon: Department of Accounting and Finance, Macquarie University, Sydney, NSW, 2109, Australia

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2007, vol. 10, issue 01, 81-99

Abstract: Previous evidence suggests that the implied volatility from equity index options, as a measure of stock market uncertainty, can provide "forward-looking information" about the stock–bond return correlation. This paper uses an alternative regime-switching autoregressive model to characterize state-dependent stock–bond return comovement and to evaluate the contribution of implied volatility in understanding transition dynamics. We confirm that implied volatility provides information about transition dynamics which is not inherent in the stock and bond returns, notwithstanding several different features of our data set and methodological approach.

Keywords: Asset pricing; regime-switching; volatility (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2007
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219091507000969

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