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Stock-bond decoupling before and after the 2008 crisis

Author

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  • E. Acosta-González
  • J. Andrada-Félix
  • F. Fernández-Rodríguez

Abstract

In this article, we analyse the co-movements of daily stock prices and government bond prices during the last 25 years, in major Western stock markets, extending previous results to take into account the impact of the current crisis. Our results confirm that bonds are viewed as instruments for improving portfolio diversification in periods of high volatility and falling stock market levels, which is when such diversification is most needed. The possibility of using government debt in portfolios as a means of hedging during times of financial crisis became especially apparent in the crises of 1997, 2001 and 2008. Nevertheless, during the current one, this diversification quality of bonds has disappeared in countries like Italy or Spain, which are also affected by sovereign debt issues.

Suggested Citation

  • E. Acosta-González & J. Andrada-Félix & F. Fernández-Rodríguez, 2016. "Stock-bond decoupling before and after the 2008 crisis," Applied Economics Letters, Taylor & Francis Journals, vol. 23(7), pages 465-470, May.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:7:p:465-470
    DOI: 10.1080/13504851.2015.1083072
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    Cited by:

    1. Ormos, Mihály & Timotity, Dusán, 2016. "Market microstructure during financial crisis: Dynamics of informed and heuristic-driven trading," Finance Research Letters, Elsevier, vol. 19(C), pages 60-66.
    2. Thomas Flavin & Dolores Lagoa-Varela, 2016. "Do long-term bonds hedge equity risk? Evidence from Spain," Economics Department Working Paper Series n275-16.pdf, Department of Economics, National University of Ireland - Maynooth.
    3. Flavin, Thomas J. & Lagoa-Varela, Dolores, 2021. "On the stability of stock-bond comovements across market conditions in the Eurozone periphery," Global Finance Journal, Elsevier, vol. 49(C).

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