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From Bulls to Bears: Stock–Bond Comovements in European Markets

In: HANDBOOK OF GLOBAL FINANCIAL MARKETS Transformations, Dependence, and Risk Spillovers

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  • Thomas J. Flavin

Abstract

We analyze the stock–bond relationship across different market conditions for a number of European countries, separately investigating the impact of stock and bond market shocks. We find key differences between ‘core’ and ‘periphery’ countries. For the ‘core’ countries, stocks and long-term bond returns are always negatively related regardless of the shock source or the prevailing market conditions, while in the ‘periphery’ countries, this relationship is reversed during stock market downturns and can depend on whether the shock originated in the stock or bond market. This limits the portfolio diversification benefits of holding domestic sovereign bonds in these countries.

Suggested Citation

  • Thomas J. Flavin, 2019. "From Bulls to Bears: Stock–Bond Comovements in European Markets," World Scientific Book Chapters, in: Sabri Boubaker & Duc Khuong Nguyen (ed.), HANDBOOK OF GLOBAL FINANCIAL MARKETS Transformations, Dependence, and Risk Spillovers, chapter 2, pages 39-55, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813236653_0002
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    More about this item

    Keywords

    Market Integration; Risk Management; Risk Assessment; Financial Uncertainty; Volatility; Financial Markets; Financial Development; Country Risks; Sovereign Debt Markets;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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