Dynamic stock–bond return correlations and financial market uncertainty

Original Research

DOI: 10.1007/s11156-013-0430-4

Cite this article as:
Chiang, T.C., Li, J. & Yang, SY. Rev Quant Finan Acc (2015) 45: 59. doi:10.1007/s11156-013-0430-4

Abstract

This paper investigates the dynamic correlations of stock–bond returns for six advanced markets. Statistics suggest that stock–bond relations are time-varying and display smooth transitional changes. The stock–bond correlations are negatively correlated with stock market uncertainty as measured by the conditional variance and the implied volatility of the S&P 500 index. However, stock–bond relations are positively related to bond market uncertainty as measured by the conditional variance of bond returns. The evidence also shows that stock–bond correlations are significantly influenced by default risk and the London interbank offered rate–T-bill rate spread in the crisis period.

Keywords

Stock–bond correlation Volatility ADCC model VIX Default risk 

JEL Classification

C12 C13 G10 G11 

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Thomas C. Chiang
    • 1
  • Jiandong Li
    • 2
  • Sheng-Yung Yang
    • 3
  1. 1.Department of FinanceDrexel UniversityPhiladelphiaUSA
  2. 2.Chinese Academy of Finance and Development (CAFD)Central University of Finance and Economics (CUFE)BeijingPeople’s Republic of China
  3. 3.Department of FinanceNational Chung Hsing UniversityTaichungTaiwan, ROC

Personalised recommendations