IDEAS home Printed from https://ideas.repec.org/p/zbw/vfsc16/145530.html
   My bibliography  Save this paper

Macroeconomic expectations and the time-varying stock-bond correlation: international evidence

Author

Listed:
  • Conrad, Christian
  • Loch, Karin

Abstract

We explain the time-varying correlation between stock and bond returns by survey expectations on the future macroeconomic development. A modified DCC-MIDAS specification allows us to relate daily changes in the correlation to monthly expectations data. For a cross-section of countries, we show that the stock-bond correlation is mainly determined by expectations regarding the future course of monetary policy as well as stress in financial markets. From a European perspective, the asymmetry in the response of the stock-bond correlation to heightened stock market volatility in the UK, Germany and France on the one hand, and Italy on the other hand is of high policy relevance.

Suggested Citation

  • Conrad, Christian & Loch, Karin, 2016. "Macroeconomic expectations and the time-varying stock-bond correlation: international evidence," Annual Conference 2016 (Augsburg): Demographic Change 145530, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc16:145530
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/145530/1/VfS_2016_pid_6352.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Asgharian, Hossein & Christiansen, Charlotte & Hou, Ai Jun, 2015. "Effects of macroeconomic uncertainty on the stock and bond markets," Finance Research Letters, Elsevier, vol. 13(C), pages 10-16.
    2. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
    3. Christian Conrad & Michael J. Lamla, 2010. "The High‐Frequency Response of the EUR‐USD Exchange Rate to ECB Communication," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1391-1417, October.
    4. Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2012. "Disagreement Among Forecasters in G7 Countries," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1081-1096, November.
    5. Shiller, Robert J. & Beltratti, Andrea E., 1992. "Stock prices and bond yields : Can their comovements be explained in terms of present value models?," Journal of Monetary Economics, Elsevier, vol. 30(1), pages 25-46, October.
    6. Connolly, Robert & Stivers, Chris & Sun, Licheng, 2005. "Stock Market Uncertainty and the Stock-Bond Return Relation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(1), pages 161-194, March.
    7. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 195-228.
    8. Hossein Asgharian & Charlotte Christiansen & Ai Jun Hou, 2016. "Macro-Finance Determinants of the Long-Run Stock–Bond Correlation: The DCC-MIDAS Specification," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 14(3), pages 617-642.
    9. Colacito, Riccardo & Engle, Robert F. & Ghysels, Eric, 2011. "A component model for dynamic correlations," Journal of Econometrics, Elsevier, vol. 164(1), pages 45-59, September.
    10. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
    11. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
    12. Campbell, John Y & Ammer, John, 1993. " What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns," Journal of Finance, American Finance Association, vol. 48(1), pages 3-37, March.
    13. Conrad, Christian & Loch, Karin, 2015. "The variance risk premium and fundamental uncertainty," Economics Letters, Elsevier, vol. 132(C), pages 56-60.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc16:145530. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - Leibniz Information Centre for Economics). General contact details of provider: http://edirc.repec.org/data/vfsocea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.