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Stock and bond market interactions with level and asymmetry dynamics: An out-of-sample application

  • de Goeij, Peter
  • Marquering, Wessel
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    We model the dynamic interaction between stock and bond returns using a multivariate model with level effects and asymmetries in conditional volatility. We examine the out-of-sample performance using daily returns on the S&P 500 index and 10Â year Treasury bond. We find evidence for significant (cross-) asymmetries in the conditional volatility and level effects in bond returns. The out-of-sample covariance matrix forecasts of the model imply that an investor is willing to pay between 129 and 820 basis points per year for using a dynamic trading strategy instead of a passive strategy.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0927-5398(08)00073-X
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    Article provided by Elsevier in its journal Journal of Empirical Finance.

    Volume (Year): 16 (2009)
    Issue (Month): 2 (March)
    Pages: 318-329

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    Handle: RePEc:eee:empfin:v:16:y:2009:i:2:p:318-329
    Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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