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Realized Bond-Stock Correlation: Macroeconomic Announcement Effects

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Author Info

  • Christiansen, Charlotte

    ()
    (Department of Accounting, Aarhus School of Business)

  • Ranaldo, Angelo

    ()
    (Research Department, Swiss National Bank)

Abstract

We investigate the effects of macroeconomic announcements on the realized correlation between bond and stock returns. Our results deliver insights into the dominating drivers of bond-stock comovements. We find that it is not so much the surprise component of the announcement, but the mere fact that an announcement occurs that influences the realized bond-stock correlation. The impact of macroeconomic announcements varies across the business cycle. Announcement effects are highly dependent on the sign of the realized bond-stock correlation which has recently gone from positive to negative. Macroeconomic announcement effects on realized bond and stock volatilities are also investigated

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Bibliographic Info

Paper provided by University of Aarhus, Aarhus School of Business, Department of Business Studies in its series Finance Research Group Working Papers with number F-2005-05.

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Length: 31 pages
Date of creation: 23 Sep 2005
Date of revision:
Handle: RePEc:hhb:aarbfi:2005-05

Note: Published in: C. Christiansen and A. Ranaldo (2007), "Realized Stock-Bond Correlation: Macroeconomic Announcement Effects", Journal of Futures Markets, 27(5), 439-469.
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Postal: The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark
Fax: + 45 86 15 19 43
Web page: http://www.asb.dk/about/departments/bs.aspx
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Keywords: Bond-stock correlation; Macroeconomic announcements; Realized correlation; Realized volatility;

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References

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  1. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-16, Duke University, Department of Economics.
  2. Robert J. Shiller & Andrea E. Beltratti, 1990. "Stock Prices and Bond Yields: Can Their Co-Movements Be Explained in Terms of Present Value Models?," Cowles Foundation Discussion Papers 953, Cowles Foundation for Research in Economics, Yale University.
  3. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Research Paper 9706, Federal Reserve Bank of New York.
  4. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001. "Modeling and Forecasting Realized Volatility," NBER Working Papers 8160, National Bureau of Economic Research, Inc.
  5. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  6. Charles M. Jones & Owen Lamont & Robin Lumsdaine, 1996. "Macroeconomic News and Bond Market Volatility," Home Pages _005, Princeton University, Department of Economics.
  7. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets," PIER Working Paper Archive 04-028, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Jun 2004.
  8. John H. Boyd & Ravi Jagannathan & Jian Hu, 2001. "The Stock Market's Reaction to Unemployment News: Why Bad News is Usually Good for Stocks," NBER Working Papers 8092, National Bureau of Economic Research, Inc.
  9. Domowitz, I., 1991. "Equally Open and Competitive: Regulatory Approval of Automated Trade Execution in the Future Markets," Papers 214, Columbia - Center for Futures Markets.
  10. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September.
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Cited by:
  1. John Y. Campbell & Adi Sunderam & Luis M. Viceira, 2009. "Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds," NBER Working Papers 14701, National Bureau of Economic Research, Inc.
  2. Karali, Berna, 2012. "Do USDA Announcements Affect Comovements Across Commodity Futures Returns?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(1), April.
  3. Høg, Esben, 2008. "Volatility and realized quadratic variation of differenced returns : A wavelet method approach," Finance Research Group Working Papers F-2008-06, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  4. Jørgensen, Peter Løchte & De Giovanni, Domenico, 2008. "Time Charters with Purchase Options in Shipping: Valuation and Risk Management," Finance Research Group Working Papers F-2008-05, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  5. Thomas Q. Pedersen, 2010. "Predictable return distributions," CREATES Research Papers 2010-38, School of Economics and Management, University of Aarhus.
  6. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
  7. Aslanidis, Nektarios & Christiansen, Charlotte, 2011. "Smooth Transition Patterns in the Realized Stock- Bond Correlation," Working Papers 2072/152138, Universitat Rovira i Virgili, Department of Economics.
  8. Aslanidis, Nektarios & Christiansen, Charlotte, 2011. "Quantiles of the Realized Stock-Bond Correlation," Working Papers 2072/151809, Universitat Rovira i Virgili, Department of Economics.
  9. repec:ags:jrapmc:122315 is not listed on IDEAS

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