Smooth Transition Patterns in the Realized Stock Bond Correlation
Nektarios Aslanidis () and
CREATES Research Papers from Department of Economics and Business Economics, Aarhus University
This paper re-examines the joint distribution of equity and bond returns using high frequency data. In particular, we analyze the weekly realized stock bond correlation calculated from 5-minute returns of the futures prices of the S&P 500 and the 10-year Treasury Note. A potentially gradual transition in the realized correlation is accommodated by regime switching smooth transition regressions. The regimes are defined by the VIX/VXO volatility index and the model includes additional economic and financial explanatory variables. The empirical results show that the smooth transition model has a better fit than a linear model at forecasting in sample, whereas the linear model is more accurate for out-of-sample forecasting. It is also shown that it is important to account for differences between positive and negative realized stock bond correlations.
Keywords: realized correlation; smooth transition regressions; stock bond correlation; VIX index (search for similar items in EconPapers)
JEL-codes: C22 G11 G17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-for and nep-mst
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Journal Article: Smooth transition patterns in the realized stock–bond correlation (2012)
Working Paper: Smooth Transition Patterns in the Realized Stock- Bond Correlation (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-15
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