Macro-Finance Determinants of the Long-Run Stock-Bond Correlation: The DCC-MIDAS Specification
Charlotte Christiansen and
Ai Jun Hou ()
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Ai Jun Hou: School of Business, Stockholm University, Postal: School of Business, Stockholm University, Sweden
No 2014:37, Working Papers from Lund University, Department of Economics
We investigate the long-run stock-bond correlation using a novel model that combines the dynamic conditional correlation model with the mixed-data sampling approach. The long-run correlation is affected by both macro-finance variables (historical and forecasts) and the lagged realized correlation itself. Macro-finance variables and the lagged realized correlation are simultaneously significant in forecasting the long-run stock-bond correlation. The behavior of the long-run stock-bond correlation is very different when estimated taking the macro-finance variables into account. Supporting the flight-to-quality phenomenon for the total stock-bond correlation, the long-run correlation tends to be small/negative when the economy is weak.
Keywords: DCC-MIDAS model; Long-run correlation; Macro-finance variables; Stock-bond correlation (search for similar items in EconPapers)
JEL-codes: C32 C58 E32 E44 G11 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
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Journal Article: Macro-Finance Determinants of the Long-Run Stock–Bond Correlation: The DCC-MIDAS Specification (2016)
Working Paper: Macro-Finance Determinants of the Long-Run Stock-Bond Correlation: The DCC-MIDAS Specification (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2014_037
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