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On The Relationship Between The Danish Stock And Bond Market In The Medium And Long Term

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Author Info

  • Olesen, Jan Overgaard

    (Department of Economics, Copenhagen Business School)

  • Risager, Ole

    (Department of Economics, Copenhagen Business School)

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    Abstract

    This short paper studies the empirical relationship between realized stock returns and bond yields at the 5- and 10-year investment horizons, respectively. Using annual Danish data since 1927, we find that stock returns and bond yields are closely linked in the medium and long term, as we estimate strong cointegrating relations at both horizons. Hence, at the 5- and 10- year investment horizons a high bond yield tends to go hand in hand with a high stock return, and vice versa. Results show that stock returns tend to respond less than one-to-one to changes in the bond yield.

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    File URL: http://ir.lib.cbs.dk/download/ISBN/x648099309.pdf
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    Bibliographic Info

    Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 04-2000.

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    Length: 22 pages
    Date of creation: 01 Feb 2000
    Date of revision:
    Handle: RePEc:hhs:cbsnow:2000_004

    Contact details of provider:
    Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
    Phone: 38 15 25 75
    Fax: 38 15 34 99
    Email:
    Web page: http://www.cbs.dk/departments/econ/
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    Related research

    Keywords: stock returns; Bond yields; Denmark;

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    1. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
    2. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
    3. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
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