Department of Economics and Business Economics

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

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DOI

  • Hossein Asgharian, University of Lund, Lund, Sweden
  • Charlotte Christiansen
  • Ai Jun Hou, University of Stockholm, Stockholm, Sweden
We investigate long-run stock–bond correlation using a model that combines the dynamic conditional correlation model with the mixed-data sampling approach and allows long-run correlation to be affected by macro-finance factors (historical and forecasts). We use macro-finance factors related to inflation and interest rates, illiquidity, state of the economy, and market uncertainty. Macro-finance factors, particularly their forecasts, are good at forecasting long-run stock–bond correlation. Supporting the flight-to-quality phenomenon, long-run correlation tends to be small and negative when the economy is weak.
Original languageEnglish
JournalJournal of Financial Econometrics
Volume14
Issue3
Pages (from-to)617-642
Number of pages26
ISSN1479-8409
DOIs
Publication statusPublished - 2016

    Research areas

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

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