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Stock-bond co-movements and cross-country linkages

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  • Dirk G. Baur

Abstract

This study analyses the correlation of stock and bond indices for eight developed countries. We compare a country's stock-bond linkages with cross-country linkages and find that the former exhibit a negative trend in contrast to the positive trend observed for cross-country stock market and bond market linkages. We show that the decline of the stock-bond correlation in recent years can be explained with a more frequent portfolio rebalancing of investors due to the globalisation of securities markets and implied lower international diversification benefits across similar asset classes. A test for temporal commonalities of changes in cross-country and stock-bond linkages indicates that flight-to-quality from stocks to bonds and cross-country stock market contagion occurs simultaneously.

Suggested Citation

  • Dirk G. Baur, 2010. "Stock-bond co-movements and cross-country linkages," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 2(2), pages 111-129.
  • Handle: RePEc:ids:injbaf:v:2:y:2010:i:2:p:111-129
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    Cited by:

    1. Sensoy, Ahmet & Sobaci, Cihat, 2014. "Effects of volatility shocks on the dynamic linkages between exchange rate, interest rate and the stock market: The case of Turkey," Economic Modelling, Elsevier, vol. 43(C), pages 448-457.
    2. van Haastrecht, Alexander & Plat, Richard & Pelsser, Antoon, 2010. "Valuation of guaranteed annuity options using a stochastic volatility model for equity prices," Insurance: Mathematics and Economics, Elsevier, vol. 47(3), pages 266-277, December.
    3. Eraslan, Sercan & Ali, Faek Menla, 2017. "Financial crises and the dynamic linkages between stock and bond returns," Discussion Papers 17/2017, Deutsche Bundesbank.
    4. Marcelo Bianconi & Joe A. Yoshino & Mariana O. Machado de Sousa, 2011. "BRIC and the U.S. Financial Crisis: An Empirical Investigation of Stocks and Bonds Markets," Discussion Papers Series, Department of Economics, Tufts University 0764, Department of Economics, Tufts University.
    5. Chang, Guang-Di & Cheng, Po-Ching, 2016. "Evidence of cross-asset contagion in U.S. markets," Economic Modelling, Elsevier, vol. 58(C), pages 219-226.
    6. Chan, Kam Fong & Treepongkaruna, Sirimon & Brooks, Robert & Gray, Stephen, 2011. "Asset market linkages: Evidence from financial, commodity and real estate assets," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1415-1426, June.
    7. Harumi Ohmi & Tatsuyoshi Okimoto, 2016. "Trends in stock-bond correlations," Applied Economics, Taylor & Francis Journals, vol. 48(6), pages 536-552, February.
    8. Aviral Kumar Tiwari & Juncal Cunado & Rangan Gupta & Mark E. Wohar, 2017. "Volatility Spillovers across Global Asset Classes: Evidence from Time and Frequency Domains," Working Papers 201780, University of Pretoria, Department of Economics.

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