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Regime Shifts in the Stock–Bond Relation in Australia

Author

Listed:
  • Garry Hobbes

    (Department of Accounting and Finance, Macquarie University, Sydney, NSW, 2109, Australia)

  • Frewen Lam

    (Macquarie Funds Management, 20 Bond Street, Sydney, NSW, 2000, Australia)

  • Geoffrey F. Loudon

    (Department of Accounting and Finance, Macquarie University, Sydney, NSW, 2109, Australia)

Abstract

Previous evidence suggests that the implied volatility from equity index options, as a measure of stock market uncertainty, can provide "forward-looking information" about the stock–bond return correlation. This paper uses an alternative regime-switching autoregressive model to characterize state-dependent stock–bond return comovement and to evaluate the contribution of implied volatility in understanding transition dynamics. We confirm that implied volatility provides information about transition dynamics which is not inherent in the stock and bond returns, notwithstanding several different features of our data set and methodological approach.

Suggested Citation

  • Garry Hobbes & Frewen Lam & Geoffrey F. Loudon, 2007. "Regime Shifts in the Stock–Bond Relation in Australia," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 81-99.
    • Handle: RePEc:wsi:rpbfmp:v:10:y:2007:i:01:n:s0219091507000969
    DOI: 10.1142/S0219091507000969
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    Citations

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    Cited by:

    1. Lee, Hyunchul, 2021. "Time-varying comovement of stock and treasury bond markets in Europe: A quantile regression approach," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 1-20.

    More about this item

    Keywords

    Asset pricing; regime-switching; volatility;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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