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Stock-bond co-movements and cross-country linkages

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  • Dirk G. Baur

Abstract

This study analyses the correlation of stock and bond indices for eight developed countries. We compare a country's stock-bond linkages with cross-country linkages and find that the former exhibit a negative trend in contrast to the positive trend observed for cross-country stock market and bond market linkages. We show that the decline of the stock-bond correlation in recent years can be explained with a more frequent portfolio rebalancing of investors due to the globalisation of securities markets and implied lower international diversification benefits across similar asset classes. A test for temporal commonalities of changes in cross-country and stock-bond linkages indicates that flight-to-quality from stocks to bonds and cross-country stock market contagion occurs simultaneously.

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Bibliographic Info

Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Banking, Accounting and Finance.

Volume (Year): 2 (2010)
Issue (Month): 2 ()
Pages: 111-129

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Handle: RePEc:ids:injbaf:v:2:y:2010:i:2:p:111-129

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Web page: http://www.inderscience.com/browse/index.php?journalID=277

Related research

Keywords: stock market co-movements; bond market co-movements; stock-bond co-movements; flight-to-quality; market contagion; stock markets; bond markets.;

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References

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  1. Geert Bekaert & Campbell R. Harvey & Robin L. Lumsdaine, 1998. "Dating the Integration of World Equity Markets," NBER Working Papers 6724, National Bureau of Economic Research, Inc.
  2. Geert Bekaert & Campbell R. Harvey, 2003. "Market Integration and Contagion," NBER Working Papers 9510, National Bureau of Economic Research, Inc.
  3. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
  4. Bracker, Kevin & Docking, Diane Scott & Koch, Paul D., 1999. "Economic determinants of evolution in international stock market integration," Journal of Empirical Finance, Elsevier, vol. 6(1), pages 1-27, January.
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Cited by:
  1. Chan, Kam Fong & Treepongkaruna, Sirimon & Brooks, Robert & Gray, Stephen, 2011. "Asset market linkages: Evidence from financial, commodity and real estate assets," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1415-1426, June.
  2. van Haastrecht, Alexander & Plat, Richard & Pelsser, Antoon, 2010. "Valuation of guaranteed annuity options using a stochastic volatility model for equity prices," Insurance: Mathematics and Economics, Elsevier, vol. 47(3), pages 266-277, December.
  3. Marcelo Bianconi & Joe A. Yoshino & Mariana O. Machado de Sousa, 2011. "BRIC and the U.S. Financial Crisis: An Empirical Investigation of Stocks and Bonds Markets," Discussion Papers Series, Department of Economics, Tufts University 0764, Department of Economics, Tufts University.

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