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Stock and Bond Relationships in Asia

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Abstract

This paper analyzes the relationship between stocks and bonds in nine Asian countries. Using a bivariate stochastic volatility model, we show that there are significant volatility spillover effects between stock and bond markets in several of the countries. Furthermore, dynamic correlation patterns show that the relationship between stock and bond markets changes considerably over time in all countries. Stock-bond correlation increases during periods of turmoil in several countries, indicating that there is a cross-asset contagion effect. Therefore, if there is a flight to quality effect in Asian markets, it seems to occur across countries or regions rather than across domestic assets. The results have direct and important implications for regional policy makers as well as domestic and international investors that invest in multiple asset classes.

Suggested Citation

  • Johansson, Anders C., 2010. "Stock and Bond Relationships in Asia," Working Paper Series 2010-14, Stockholm School of Economics, China Economic Research Center.
  • Handle: RePEc:hhs:hacerc:2010-014
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    File URL: http://swopec.hhs.se/hacerc/papers/hacerc2010-014.pdf
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    Cited by:

    1. Johansson, Anders C., 2010. "Asian sovereign debt and country risk," Pacific-Basin Finance Journal, Elsevier, vol. 18(4), pages 335-350, September.
    2. Takashi Matsuki, 2016. "Linear and nonlinear comovement in Southeast Asian local currency bond markets: a stepwise multiple testing approach," Empirical Economics, Springer, vol. 51(2), pages 591-619, September.

    More about this item

    Keywords

    Asia; stock markets; bond markets; stochastic volatility; Markov Chain Monte Carlo; spillover effects; dynamic correlation;

    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
    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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