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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.

Suggested Citation

  • Dirk G. Baur, 2010. "Stock-bond co-movements and cross-country linkages," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 2(2), pages 111-129.
    • Handle: RePEc:ids:injbaf:v:2:y:2010:i:2:p:111-129
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    8. McMillan, David G., 2019. "Cross-asset relations, correlations and economic implications," Global Finance Journal, Elsevier, vol. 41(C), pages 60-78.
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