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Smooth Transition Patterns in the Realized Stock- Bond Correlation

  • Aslanidis, Nektarios
  • Christiansen, Charlotte
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    Abstract: We analyze the realized stock-bond correlation. Gradual transitions between negative and positive stock-bond correlation is accommodated by the smooth transition regression (STR) model. The changes in regime are de…ned by economic and …financial transition variables. Both in sample and out-of- sample results document that STR models with multiple transition variables outperform STR models with a single transition variable. The most important transition variables are the short rate, the yield spread, and the VIX volatility index. Keywords: realized correlation; smooth transition regressions; stock-bond correlation; VIX index JEL Classifi…cations: C22; G11; G12; G17

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    File URL: http://hdl.handle.net/2072/152138
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    Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/152138.

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    Date of creation: 2011
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    Handle: RePEc:urv:wpaper:2072/152138
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