Sign and Quantiles of the Realized Stock-Bond Correlation
AbstractWe scrutinize the monthly realized stock-bond correlation based upon high frequency returns. In particular, we use a probit model to track the dynamics of the sign of the correlation relative to its various economic forces. The sign is predictable to a large extent with bond market liquidity being the most important variable. Moreover, stock market volatility, inflation uncertainty, short rate volatility, and bond volatility have significant effects upon the sign. In addition, we use quantile regressions to pin down the systematic variation of the extreme tails of the realized stock-bond correlation over its economic determinants. We document that the correlation behaves di¤erently when it is large negative (0.10 quantile) as opposed to when it is large positive (0.90 quantile). Nevertheless, the empirical findings are only partially robust to using other, possibly less precise, measures of the stock-bond correlation.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2010-55.
Date of creation: 31 Aug 2010
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Realized stock-bond correlation; Sign; Binary models; Quantile regressions;
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- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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- Nektarios Aslanidis & Charlotte Christiansen, 2010.
"Smooth Transition Patterns in the Realized Stock Bond Correlation,"
CREATES Research Papers, School of Economics and Management, University of Aarhus
2010-15, School of Economics and Management, University of Aarhus.
- Aslanidis, Nektarios & Christiansen, Charlotte, 2011. "Smooth Transition Patterns in the Realized Stock- Bond Correlation," Working Papers, Universitat Rovira i Virgili, Department of Economics 2072/152138, Universitat Rovira i Virgili, Department of Economics.
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