Dynamic stock-bond return correlations and financial market uncertainty

摘要

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.