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The Dynamic Correlation Between Stock And Bond Returns
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Book Synopsis The Dynamic Correlation between Stock and Bond Returns by : Thomas Chinan Chiang
Download or read book The Dynamic Correlation between Stock and Bond Returns written by Thomas Chinan Chiang and published by . This book was released on 2009 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the correlation of returns between the U.S. stock and bond markets using two prominent index funds. By employing both rolling correlation and dynamic correlation coefficient models for the sample period from 1996 through 2008, we find that the correlation coefficients between stocks and bonds are time-varying and, on average, negative. The correlation coefficients between stock and bond markets depend on a few key macro state variables. The correlation coefficient is negatively correlated with the uncertainty of the stock market's performance but positively related to real income growth and the level of the federal funds rate.
Book Synopsis Time Varying Correlations between Stock and Bond Returns - Evidence from Russia by : Kashif Saleem
Download or read book Time Varying Correlations between Stock and Bond Returns - Evidence from Russia written by Kashif Saleem and published by . This book was released on 2008 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this study is to look at the relationship between stock market and bond market of Russia for the period of July 1994 to Dec. 2007. We attempt to examine whether the correlations between two classes of assets are time varying by using multivariate conditional volatility models. We start our investigation by applying Bollerslev (1990) Constant conditional correlation model to test whether varying correlations are statistically significant then we use DCC-GARCH (1, 1) model proposed by Engle (2002) to analyze the dynamics of conditional correlations between the two assets. Finally, to investigate the asymmetries in conditional variances, covariances, and correlations, we adopt an asymmetric version of the Dynamic Conditional Correlation (ADCC) model proposed by Engle et al. (2006). Our empirical results do not support the assumption of constant conditional correlation and we found clear evidence of time varying correlations between Russian stocks and bond market. Our results offers a batter understanding for the dynamics of the correlations between stocks and bonds in an emerging market setting which is obviously very valuable for the portfolio managers, international investors, risk analysts and financial researchers as well as for the policy implications.
Book Synopsis Three Essays on Modeling Stock Returns: Empirical Analysis of the Residual Distribution, Risk-return Relation, and Stock-bond Dynamic Correlation by : Jiandong Li
Download or read book Three Essays on Modeling Stock Returns: Empirical Analysis of the Residual Distribution, Risk-return Relation, and Stock-bond Dynamic Correlation written by Jiandong Li and published by . This book was released on 2007 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the following issues: the presence of non-normal distribution features and the significance of higher order moments, the tradeoff between risk and return, and the dynamic conditional correlation between stock returns and bond returns. These issues are structured into three essays.
Book Synopsis Correlation Between Individual Stock and Corporate Bond Returns by : Belen Nieto
Download or read book Correlation Between Individual Stock and Corporate Bond Returns written by Belen Nieto and published by . This book was released on 2014 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the correlations between individual bond and stock returns issued by the same firm using Trading Reporting and Compliance Engine prices. We employ panel data to analyze the determinants of the variation in estimated dynamic correlations using macroeconomic cycle indicators, firm risk measures, and specific bond characteristics. The results show that the correlations vary both over time and cross-sectionally. Specifically, aggregate factors approximating economic growth are not related to changes in correlations, but correlations decrease with negative expectations about future aggregate risks, although only for firms with a low default probability. However, the correlations are higher when the stock idiosyncratic risk and/or firm financial leverage increases. In contrast, the relation between correlations and the systematic stock risk is negative.
Book Synopsis Stock-Bond Return Dynamic Correlation and Macroeconomic Announcements by : Abdel Razzaq Al Rababa'a
Download or read book Stock-Bond Return Dynamic Correlation and Macroeconomic Announcements written by Abdel Razzaq Al Rababa'a and published by . This book was released on 2018 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use wavelet analysis to examine the impact of macro-news announcements on the stock-bond correlation. Significant announcement effects appear after controlling for the recent financial crisis, with a link between the speed of reaction and the timing of announcements, with early released news exhibiting a slower effect. The news effects differ when we replace the 2008 crisis with the 2001 dot-com or 2011 government debt ceiling dispute periods. Tests involving small stocks, different model specifications, volatility effects and other robustness considerations continue to support our results. These results will enhance our understanding of the links between financial markets and the macroeconomy.
Book Synopsis Stock Market Uncertainty and the Relation Between Stock and Bond Returns by : Christopher T. Stivers
Download or read book Stock Market Uncertainty and the Relation Between Stock and Bond Returns written by Christopher T. Stivers and published by . This book was released on 2002 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Macroeconomic Factors and the Correlation of Stock and Bond Returns by : Lingfeng Li
Download or read book Macroeconomic Factors and the Correlation of Stock and Bond Returns written by Lingfeng Li and published by . This book was released on 2003 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the correlation between stock and bond returns. It first documents that the major trends in stock-bond correlation for G7 countries follow a similar reverting pattern in the past forty years. Next, an asset pricing model is employed to show that the correlation of stock and bond returns can be explained by their common exposure to macroeconomic factors. The link between the stock-bond correlation and macroeconomic factors is examined using three successively more realistic formulations of asset return dynamics. Empirical results indicate that the major trends in stock-bond correlation are determined primarily by uncertainty about expected inflation. Unexpected inflation and the real interest rate are significant to a lesser degree. Forecasting this stock-bond correlation using macroeconomic factors also helps improve investors' asset allocation decisions. One implication of this link between trends in stock-bond correlation and inflation risk is the Murphy's Law of Diversification: Diversification opportunities are least available when they are most needed.
Book Synopsis Risk Premia and the Dynamic Covariance between Stock and Bond Returns by : John T. Scruggs
Download or read book Risk Premia and the Dynamic Covariance between Stock and Bond Returns written by John T. Scruggs and published by . This book was released on 2012 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate two topics: (1) the nature of the dynamic covariance matrix of stock and bond returns, and (2) the intertemporal relation between risk and return. We estimate a conditional two-factor variant of Merton's ICAPM in which long-term government bond returns proxy for the second risk factor. Stock and bond risk premia are linear functions of an asymmetric dynamic covariance (ADC) matrix for stock and bond returns. We find that conditional bond variance responds symmetrically to bond return shocks but is virtually unaffected by stock return shocks, while conditional stock variance responds asymmetrically to both stock and bond return shocks. Models that impose a constant correlation restriction on the covariance matrix between stock and bond returns are strongly rejected. We find that intertemporal risk-return relationships are very sensitive to the specification of conditional first and second moments.
Book Synopsis Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns by : Lorenzo Cappiello
Download or read book Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns written by Lorenzo Cappiello and published by . This book was released on 2008 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the presence of asymmetric conditional second moments in international equity and bond returns. The analysis is carried out through an asymmetric version of the Dynamic Conditional Correlation model of Engle (2002). Widespread evidence is found that national equity index return series show strong asymmetries in conditional volatility, while little evidence is seen that bond index returns exhibit this behaviour. However, both bonds and equities exhibit asymmetry in conditional correlation. Worldwide linkages in the dynamics of volatility and correlation are examined. It is also found that beginning in January 1999, with the introduction of the Euro, there is significant evidence of a structural break in correlation, although not in volatility. The introduction of a fixed exchange rate regime leads to near perfect correlation among bond returns within EMU countries. However, equity return correlation both within and outside the EMU also increases after January 1999.
Book Synopsis Correlation Between Rates of Return in the Stock and Bond Markets by : David R. Forster
Download or read book Correlation Between Rates of Return in the Stock and Bond Markets written by David R. Forster and published by . This book was released on 1973 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Interrelation and Spillover Effects Between Stocks and Bonds by : David G. McMillan
Download or read book Interrelation and Spillover Effects Between Stocks and Bonds written by David G. McMillan and published by . This book was released on 2019 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the behaviour of stock and bond markets across four major international countries. The results confirm the view that same asset-cross country return correlations and spillovers increase over time. However, the same in not true with variance and covariance behaviour. Volatility spillovers across countries exhibit a substantial amount of time-variation, however, there is no evidence of trending in any direction. Equally, cross asset-same country correlations exhibit both negative and positive values. Further, we report an inverse relation between same asset-cross country return correlations and cross asset-same country return correlations i.e., the stock return correlation across countries increases at the same time the stock and bond return correlation within each country declines. Moreover, results show that the stock and bond return correlations exhibit commonality across countries. Results also demonstrate that stock returns lead movement in bond returns, while US stock and bond returns have predictive power other country stock and bond returns. In terms of the markets analysed, Japan exhibit a distinct nature compared with those of Germany, the UK and the US. The results presented here provide a detailed characterisation of how asset interact both with each other and cross countries and should be of interest to portfolio managers, policy-makers and those interested in modelling cross market behaviour.
Book Synopsis Dynamic Asset Allocation by : David A. Hammer
Download or read book Dynamic Asset Allocation written by David A. Hammer and published by . This book was released on 1991-04-25 with total page 362 pages. Available in PDF, EPUB and Kindle. Book excerpt: Includes an examination of traditional asset allocation methods, why they do and do not work, and which elements can be used in overseeing the professional's own portfolio. In addition, the author introduces his own proven method of portfolio management and asset allocation strategies--the ``7-Step System''--using simple statistical techniques to forecast stock, bond, commodity, and money market returns. Free of complex mathematics, charts, graphs, and technical jargon, this is a highly readable guide to getting the most from today's sophisticated investment techniques.
Book Synopsis Time-Varying Stock-Bond Correlation by : Favoured Mogbolu
Download or read book Time-Varying Stock-Bond Correlation written by Favoured Mogbolu and published by . This book was released on 2017 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: The pattern of correlation between stocks and bonds has important implications for optimal cross-market asset allocation decisions, and risk management strategies by investors. Earlier empirical studies assumed a constant stock-bond correlation. An increasing number of recent studies however, are of the view that the relation exhibits substantial time-variation. This study explores the information in daily correlations, to ascertain the extent and pattern of timevariation with the aim of deriving evidence on time-variation over short periods. The empirical methodology involved statistical inference in conjunction with quantile analysis, using the rolling window sample correlation method. This methodology provides evidence on the statistical importance of the correlation changes, and also facilitates information on timevariation over short periods from the distribution of conditional daily correlations. The study found substantial changes in sizes and signs in the daily correlations. We conclude that there is substantial time-variation in the value of daily correlations. Specifically, the daily correlation changes and takes on high positive and negative values relative to a low historical value. The important implication of frequent change in the correlation is that the hedging benefits from asset portfolios allocated over stock and bonds is subject to frequent changes, as a result portfolio managers approach to evaluating and managing portfolio risk should be dynamic.
Book Synopsis Financial Crises and the Dynamic Linkages Between Stock and Bond Returns by : Sercan Eraslan
Download or read book Financial Crises and the Dynamic Linkages Between Stock and Bond Returns written by Sercan Eraslan and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The cross-section and time-series of stock and bond returns by : Ralph S. J. Koijen
Download or read book The cross-section and time-series of stock and bond returns written by Ralph S. J. Koijen and published by . This book was released on 2010 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose an arbitrage-free stochastic discount factor (SDF) model that jointly prices the cross-section of returns on portfolios of stocks sorted on book-to-market dimension, the cross-section of government bonds sorted by maturity, the dynamics of bond yields, and time series variation in expected stock and bond returns. Its pricing factors are motivated by a decomposition of the pricing kernel into a permanent and a transitory component. Shocks to the transitory component govern the level of the term structure of interest rates and price the cross-section of bond returns. Shocks to the permanent component govern the dividend yield and price the average equity returns. Third, shocks to the relative contribution of the transitory component to the conditional variance of the SDF govern the Cochrane-Piazzesi (2005, CP) factor, a strong predictor of future bond returns. These shocks price the cross-section of book-to-market sorted stock portfolios. Because the CP factor is a strong predictor of economic activity one- to two-years ahead, positive shocks to CP signal improving economic conditions, leading to a positive price of risk. Value stocks are riskier and carry a return premium because they are more exposed to such shocks.
Book Synopsis Is Corporate Bond Market Performance Driven by Stock Market Performance? by : Hayette Gatfaoui
Download or read book Is Corporate Bond Market Performance Driven by Stock Market Performance? written by Hayette Gatfaoui and published by . This book was released on 2009 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stock markets and bond markets are known to interact. Specifically, the common stock market trend (i.e., business cycle also termed market / systematic risk) impacts common corporate bond market trend (i.e., credit cycle). First, we disentangle the common latent component from total stock returns (i.e., systematic / unobserved common stock market component). Second, we extract the common latent component from total bond returns (i.e., common unobserved systematic corporate bond component). Then, we estimate the dynamic relation between systematic total stock returns and systematic total bond returns over time (i.e., co- and anti-monotonicity risk). We characterize therefore the time-varying correlation risk (i.e., correlation risk structure) between stock performance and corporate bond performance. Results are instructive in a risk management prospect with regard to equity- and corporate bond-based portfolios.
Book Synopsis Strategic Asset Allocation by : John Y. Campbell
Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
