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Time-varying market integration and stock and bond return concordance in emerging markets

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  • Panchenko, Valentyn
  • Wu, Eliza

Abstract

We investigate the extent to which emerging stock market integration affects the joint behavior of stock and bond returns using a two-stage semi-parametric approach. Using a sample of 18 emerging markets, we find an unambiguous and robust link between emerging stock market integration and stock-bond return decoupling. We explain this with a decline in the segmentation risk premia in equities modeled by De Jong and De Roon [De Jong, F., De Roon, F.A., 2005. Time-varying market integration and expected returns in emerging markets. Journal of Financial Economics 78, 583-613] that leads to increased demand for stocks and reduced or unchanged demand for bonds. Our findings deliver new insights into the financial liberalization and stock-bond comovement literatures.

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  • Panchenko, Valentyn & Wu, Eliza, 2009. "Time-varying market integration and stock and bond return concordance in emerging markets," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1014-1021, June.
    • Handle: RePEc:eee:jbfina:v:33:y:2009:i:6:p:1014-1021
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