From Bulls to Bears: Stock–Bond Comovements in European Markets

Thomas Flavin

Chapter 2 in Handbook of Global Financial Markets:Transformations, Dependence, and Risk Spillovers, 2019, pp 39-55 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We analyze the stock–bond relationship across different market conditions for a number of European countries, separately investigating the impact of stock and bond market shocks. We find key differences between ‘core’ and ‘periphery’ countries. For the ‘core’ countries, stocks and long-term bond returns are always negatively related regardless of the shock source or the prevailing market conditions, while in the ‘periphery’ countries, this relationship is reversed during stock market downturns and can depend on whether the shock originated in the stock or bond market. This limits the portfolio diversification benefits of holding domestic sovereign bonds in these countries.

Keywords: Market Integration; Risk Management; Risk Assessment; Financial Uncertainty; Volatility; Financial Markets; Financial Development; Country Risks; Sovereign Debt Markets (search for similar items in EconPapers)
JEL-codes: F37 (search for similar items in EconPapers)
Date: 2019
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