Identifying time variability in stock and interest rate dependence

Arbeitspapier

The correlation between stock markets and interest rates has been discussed in numerous studies in the past, with differing results in terms of strength and direction of the relationship. This paper uses models of the multivariate GARCH type which allow for time-variability and regime changes in correlation. All estimated models allowing for timevarying correlation complement each other in identifying time-varying patterns found in the (co-)movement between the variables. Furthermore, we provide evidence for both large changes in correlation, as well as for the existence of regimes between which correlation may move. Our result of a dominant time factor indicates a transition in market structures over time, which is in line with observations in the markets and which may be seen as an explanation for previously differing results.

Object Details

• ISBN: 978-3-86558-846-3
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 24/2012

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Financial Econometrics
• Subject: time-varying correlation ; regime transition ; multivariate GARCH ; smooth transition ; cross-asset correlation ; non-linear estimation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Stein, Michael ; Islami, Mevlud ; Lindemann, Jens
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/64818
• Last update: 10.03.2025, 11:43 AM CET