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Determinants of stock-bond market comovement in the Eurozone under model uncertainty

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  • Skintzi, Vasiliki

Abstract

This paper examines the dynamic relationship between stock and bond returns in eleven Eurozone countries during the last seventeen years. The literature so far reports heterogeneous results with respect to the important determinants of the stock-bond relationship. To deal with model uncertainty we employ a Bayesian model averaging technique and examine various macroeconomic and financial variables which are likely to influence stock-bond comovement. Bond and stock market uncertainty, interest rate, inflation and state of the economy are important determinants of cross-asset correlations. Divergence in the dynamic patterns of stock-bond comovement as well as on the effect of economic variables on this comovement is reported during crisis periods and between different European regions. Our results are of high relevance for investment strategies as well as for policy decisions in the European context.

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  • Skintzi, Vasiliki, 2017. "Determinants of stock-bond market comovement in the Eurozone under model uncertainty," MPRA Paper 78278, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:78278
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    Cited by:

    1. Gupta, Rangan & Kollias, Christos & Papadamou, Stephanos & Wohar, Mark E., 2018. "News implied volatility and the stock-bond nexus: Evidence from historical data for the USA and the UK markets," Journal of Multinational Financial Management, Elsevier, vol. 47, pages 76-90.
    2. Refk Selmi & Christos Kollias & Stephanos Papadamou & Rangan Gupta, 2017. "A Copula-Based Quantile-on-Quantile Regression Approach to Modeling Dependence Structure between Stock and Bond Returns: Evidence from Historical Data of India, South Africa, UK and US," Working Papers 201747, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    stock-bond correlation; Bayesian Model Averaging; financial crisis;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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