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Quantile dependence between the stock, bond and foreign exchange markets – Evidence from the UK

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  • Raza, Hamid
  • Wu, Weiou

Abstract

In the wake of Brexit, this paper aims to provide a measure for the quantile dependence amongst different financial assets – bond, stock, and currency – within the UK market and their cross-border linkages with the European equity market. We implement a nonparametric estimation method for both the tail and quantile dependence parameters on weekly data over the period 1989–2016 using copula. Our results suggest that the contagion effects between stock and currency markets are limited, even under extreme fluctuations. We also find a weak comovement between currency and bond markets, however, evidence of asymmetry is found in the dependence structure, possibly due to the ‘risk-reward’ scenario of international investors. Finally, our results indicate a weak dependence between stock returns and bond yields, possibly due to the low-yielding gilt and the thirst for income, pushing investors to diversify globally into other financial markets.

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  • Raza, Hamid & Wu, Weiou, 2018. "Quantile dependence between the stock, bond and foreign exchange markets – Evidence from the UK," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 286-296.
  • Handle: RePEc:eee:quaeco:v:69:y:2018:i:c:p:286-296
    DOI: 10.1016/j.qref.2018.03.009
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    More about this item

    Keywords

    Quantile dependence; Copula; Nonparametric estimation; Asymmetric dependence;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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