The determinants of stock and bond return comovements

Arbeitspapier

We study the economic sources of stock-bond return comovement and its time variation using a dynamic factor model. We identify the economic factors employing structural and non-structural vector autoregressive models for economic state variables such as interest rates, (expected) inflation, output growth and dividend payouts. We also view risk aversion, and uncertainty about inflation and output as additional potential factors. Even the best-fitting economic factor model fits the dynamics of stock-bond return correlations poorly. Alternative factors, such as liquidity proxies, help explain the residual correlations not explained by the economic models.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: NBB Working Paper ; No. 119

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy
• Subject: factor models ; stock-bond return correlation ; macroeconomic factors ; new-Keynesian models ; structural VAR ; liquidity ; flight-to-safety ; Kapitaleinkommen ; Anleihe ; Aktie ; Korrelation ; Portfolio-Management ; CAPM ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Baele, Lieven ; Bekaert, Geert ; Inghelbrecht, Koen
• Event: Veröffentlichung
• (who): National Bank of Belgium
• (where): Brussels
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/144332
• Last update: 10.03.2025, 11:42 AM CET