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International Stock-Bond Correlations in a Simple Affine Asset Pricing Model

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Author Info
Stefano d'Addona (Columbia Business School)
Axel H. Kind (University of St. Gallen - Swiss Institute of Banking & Finance)

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Abstract

In this paper we use an affine asset pricing model to jointly value stocks and bonds. This enables us to derive endogenous correlations and to explain how economic fundamentals influence the correlation between stock and bond returns. The presented model is implemented for G7 post- war economies and its in-sample and out-of-sample performance is assessed by comparing the correlations generated by the model with conventional statistical measures. The affine framework developed in this paper is found to generate stock-bond correlations that are in line with empirically observed figures

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Paper provided by EconWPA in its series Finance with number 0502018.

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Length: 53 pages
Date of creation: 23 Feb 2005
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Handle: RePEc:wpa:wuwpfi:0502018

Note: Type of Document - pdf; pages: 53
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Web page: http://129.3.20.41

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Related research
Keywords: Affine Pricing Models; Stock-Bond Correlations; G-7 Countries;

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Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Barsky, Robert B, 1989. "Why Don't the Prices of Stocks and Bonds Move Together?," American Economic Review, American Economic Association, vol. 79(5), pages 1132-45, December. [Downloadable!] (restricted)
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  2. William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2001. "Long-Term Global Market Correlations," Yale School of Management Working Papers ysm237, Yale School of Management. [Downloadable!]
    Other versions:
  3. Kaplanis, Evi C., 1988. "Stability and forecasting of the comovement measures of international stock market returns," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 63-75, March. [Downloadable!] (restricted)
  4. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February. [Downloadable!]
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  5. Geert Bekaert & Steven R. Grenadier, 1999. "Stock and Bond Pricing in an Affine Economy," NBER Working Papers 7346, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Robert F. Engle & Kevin Sheppard, 2001. "Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH," University of California at San Diego, Economics Working Paper Series 2001-15, Department of Economics, UC San Diego. [Downloadable!]
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  7. Harry Mamaysky, 2002. "On the Joint Pricing of Stocks and Bonds: Theory and Evidence," Yale School of Management Working Papers ysm256, Yale School of Management. [Downloadable!]
  8. repec:cup:etheor:v:11:y:1995:i:1:p:122-50 is not listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marie Brière & Ariane Chapelle & Ariane Szafarz, 2008. "No contagion, only globalization and flight to quality," Working Papers DULBEA 08-22.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
    Other versions:
  2. Angelos Kanas, 2009. "The relation between the equity risk premium and the bond maturity premium in the UK: 1900–2006," Journal of Economics and Finance, Springer, vol. 33(2), pages 111-127, April. [Downloadable!] (restricted)
  3. Wolfgang Lemke & Thomas Werner, 2009. "The term structure of equity premia in an affine arbitrage-free model of bond and stock market dynamics," Working Paper Series 1045, European Central Bank. [Downloadable!]
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