European Sovereign Bond and Stock Market Granger Causality Dynamics

Pedro Gomes, Zeynep O. Kurter and Rubens Morita
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Zeynep O. Kurter: University of Warwick

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We investigate the lead-lag relationship between weekly sovereign bond yield changes and stock market returns for eight European countries, and how it changed during the period 2008-2018. We use a Markov-Switching Granger Causality method that determines reversals of causality endogenously. In all countries, there were often changes in the direction of the Granger causality between the two markets that coincided with global and idiosyncratic economic events. Stock returns led changes of sovereign bond yields in all countries, particularly during the financial and the Euro Area crisis. Changes of sovereign bond yields occasionally led stock returns in France, Spain and Portugal. JEL classification: C32 ; C54 ; C61 ; G01 ; G12 ; G15

Keywords: Sovereign Bond Yields; Stock Markets; Vector Autoregression; Markov-Switching; Granger Causality (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-eec and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1405

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