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Smooth Transition Patterns in the Realized Stock- Bond Correlation

  • Aslanidis, Nektarios
  • Christiansen, Charlotte

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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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
Date of revision:
Handle: RePEc:urv:wpaper:2072/152138
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  1. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
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