Stock and Sovereign Returns Linkages: Time-Varying Causality and Extreme-Quantile Determinants

Antonio Afonso, José Alves, Wojciech Grabowski and Sofia Monteiro

No 11667, CESifo Working Paper Series from CESifo

Abstract: We employ a cross-quantilogram approach to assess relationships between quantiles of stock returns and sovereign yields, in the U.S. and Germany, in the period 1990-2024. Specifically, we focus on the lowest 5% quantile of stock returns and the highest 5% quantile of bond returns, providing insights into tail dependencies, crucial during market downturns and periods of heightened volatility. We also measure causality in volatilities extending well-known approaches analyzing volatility transmission. We find significant cross-market relationships between U.S. and German stock and bond markets, influenced by economic crises, macroeconomic dynamics, and monetary policy interventions, and financial stress play a crucial role.

Keywords: stock returns; sovereign bond returns; stock-bond relationship; cross-quantilogram; volatility transmission; US; Germany; monetary policy shocks; fiscal stance (search for similar items in EconPapers)
JEL-codes: C32 F21 F37 F42 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-fmk
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Working Paper: Stock and sovereign returns linkages: time-varying causality and extreme-quantile determinants (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11667

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