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On the stability of stock-bond comovements across market conditions in the Eurozone periphery

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  • Flavin, Thomas J.
  • Lagoa-Varela, Dolores

Abstract

We analyze the relationship between returns on equity and long-term government bonds in the crisis-hit Eurozone peripheral economies. In particular, we are interested in the stability of the relationship across differing market conditions and if long-term bonds act as a safe haven for equity investors during periods of financial distress. Employing a Markov-switching vector autoregression model with three regimes, we find that the stock-bond relationship varies across market conditions and across countries. Overall we observe increased comovement during the crisis regimes at the market level, with the relationship between the financial sectors and the domestic sovereign bond being its most important driver across countries.

Suggested Citation

  • Flavin, Thomas J. & Lagoa-Varela, Dolores, 2021. "On the stability of stock-bond comovements across market conditions in the Eurozone periphery," Global Finance Journal, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:glofin:v:49:y:2021:i:c:s1044028318303144
    DOI: 10.1016/j.gfj.2019.100491
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    Cited by:

    1. Gomes, Pedro & Kurter, Zeynep O. & Morita, Rubens, 2022. "European Sovereign Bond and Stock Market Granger Causality Dynamics," The Warwick Economics Research Paper Series (TWERPS) 1405, University of Warwick, Department of Economics.
    2. Anirut Pisedtasalasai, 2021. "Hedging Stocks in Crises and Market Downturns with Gold and Bonds: Industry Analysis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(1), pages 1-16, January.

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    More about this item

    Keywords

    Stock-bond relationship; Eurozone peripheral countries; Financial crisis; Safe haven;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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