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Quantiles of the Realized Stock-Bond Correlation

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  • Aslanidis, Nektarios
  • Christiansen, Charlotte

Abstract

Abstract: We scrutinize the realized stock-bond correlation based upon high frequency returns. We use quantile regressions to pin down the systematic variation of the extreme tails over their economic determinants. The correlation dependence behaves differently when the correlation is large negative and large positive. The important explanatory variables at the extreme low quantile are the short rate, the yield spread, and the volatility index. At the extreme high quantile the bond market liquidity is also important. The empirical fi…ndings are only partially robust to using less precise measures of the stock-bond correlation. The results are not caused by the recent …financial crisis. Keywords: Extreme returns; Financial crisis; Realized stock-bond correlation; Quantile regressions; VIX. JEL Classifi…cations: C22; G01; G11; G12

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Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/151809.

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Date of creation: 2011
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Handle: RePEc:urv:wpaper:2072/151809

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Keywords: Cartera de valors -- Gestió; Actius financers; 336 - Finances. Banca. Moneda. Borsa;

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  1. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2004. "Real-time price discovery in stock, bond and foreign exchange markets," CFS Working Paper Series 2004/19, Center for Financial Studies (CFS).
  2. Engle, Robert F & Manganelli, Simone, 1999. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt06m3d6nv, Department of Economics, UC San Diego.
  3. Scruggs, John T. & Glabadanidis, Paskalis, 2003. "Risk Premia and the Dynamic Covariance between Stock and Bond Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 38(02), pages 295-316, June.
  4. John Y. Campbell & John Ammer, 1991. "What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns," NBER Working Papers 3760, National Bureau of Economic Research, Inc.
  5. Lieven Baele & Geert Bekaert & Koen Inghelbrecht, 2009. "The Determinants of Stock and Bond Return Comovements," NBER Working Papers 15260, National Bureau of Economic Research, Inc.
  6. Christiansen, Charlotte & Ranaldo, Angelo & Söderlind, Paul, 2011. "The Time-Varying Systematic Risk of Carry Trade Strategies," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 46(04), pages 1107-1125, September.
  7. Charlotte Christiansen & Angelo Ranaldo, 2006. "Realized Bond-Stock Correlation: Macroeconomic Announcement Effects," Working Papers 2006-02, Swiss National Bank.
  8. 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.
  9. Thomas Q. Pedersen, 2010. "Predictable return distributions," CREATES Research Papers 2010-38, School of Economics and Management, University of Aarhus.
  10. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2003. "Modeling and Forecasting Realized Volatility," Econometrica, Econometric Society, Econometric Society, vol. 71(2), pages 579-625, March.
  11. Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, Elsevier, vol. 25(1), pages 23-49, November.
  12. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(3), pages 339-50, July.
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