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International Stock-Bond Correlations in a Simple Affine Asset Pricing Model

  • Stefano d'Addona

    (Columbia Business School)

  • Axel H. Kind

    (University of St. Gallen - Swiss Institute of Banking & Finance)

In this paper we use an affine asset pricing model to jointly value stocks and bonds. This enables us to derive endogenous correlations and to explain how economic fundamentals influence the correlation between stock and bond returns. The presented model is implemented for G7 post- war economies and its in-sample and out-of-sample performance is assessed by comparing the correlations generated by the model with conventional statistical measures. The affine framework developed in this paper is found to generate stock-bond correlations that are in line with empirically observed figures

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File URL: http://econwpa.repec.org/eps/fin/papers/0502/0502018.pdf
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Paper provided by EconWPA in its series Finance with number 0502018.

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Length: 53 pages
Date of creation: 23 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0502018
Note: Type of Document - pdf; pages: 53
Contact details of provider: Web page: http://econwpa.repec.org

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