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Changing Dynamic Relationships between Stock and Bond Markets in Crises: Evidence of a Flight to Quality

Author

Listed:
  • Wafa Kammoun Masmoudi

    (Higher School of Economic and Commercial Sciences, University of Tunis)

Abstract

This research explores the dynamic relationship between the domestic stock and bond returns for developed and emerging markets in order to approximate the time varying of inter-market integration and identify its main economic and financial determinants. The results show firstly that there is a significant time-varying conditional correlations between stock and bond indices. During crisis periods or turbulence, dynamic conditional correlations (DCC) fall and even become negative for developed countries, confirming the phenomenon of flight to quality in financial markets. This variability is mainly due to the variation of the exchange rate and economic uncertainty in the financial system.

Suggested Citation

  • Wafa Kammoun Masmoudi, 2016. "Changing Dynamic Relationships between Stock and Bond Markets in Crises: Evidence of a Flight to Quality," Bankers, Markets & Investors, ESKA Publishing, issue 141, pages 36-56, March-Apr.
    • Handle: RePEc:rbq:journl:i:141:p:36-56
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    More about this item

    Keywords

    Volatility; Stock-bond Correlations; Time-varying Financial Market Integration; Flight to Quality.;
    All these keywords.

    JEL classification:

    • 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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F3 - International Economics - - International Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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