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Smooth Transition Patterns in the Realized Stock Bond Correlation

Nektarios Aslanidis () and Charlotte Christiansen

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: 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)
Pages: 25
Date: 2010-04-26
New Economics Papers: this item is included in nep-fmk, nep-for and nep-mst
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https://repec.econ.au.dk/repec/creates/rp/10/rp10_15.pdf (application/pdf)

Related works:
Journal Article: Smooth transition patterns in the realized stock–bond correlation (2012) Downloads
Working Paper: Smooth Transition Patterns in the Realized Stock- Bond Correlation (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-15

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