Macro-Finance Determinants of the Long-Run Stock-Bond Correlation: The DCC-MIDAS Specification

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We investigate the long-run stock-bond correlation using a novel model that combines the dynamic conditional correlation model with the mixed-data sampling approach. The long-run correlation is affected by both macro-finance variables (historical and forecasts) and the lagged realized correlation itself. Macro-finance variables and the lagged realized correlation are simultaneously significant in forecasting the long-run stock-bond correlation. The behavior of the long-run stock-bond correlation is very different when estimated taking the macro-finance variables into account. Supporting the flight-to-quality phenomenon for the total stock-bond correlation, the long-run correlation tends to be small/negative when the economy is weak.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider38
StatusUdgivet - 11 apr. 2014
SerietitelCREATES Research Papers
Nummer2014-13

    Forskningsområder

  • DCC-MIDAS model, Long-run correlation, Macro-finance variables, Stock-bond correlation

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