Department of Economics and Business Economics

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

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  • rp14_13

    Submitted manuscript, 2.42 MB, PDF document

  • Hossein Asgharian, University of Lund, Lund, Sweden
  • Charlotte Christiansen
  • Ai Jun Hou, University of Stockholm, Stockholm, Sweden
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
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages38
Publication statusPublished - 11 Apr 2014
SeriesCREATES Research Papers
Number2014-13

    Research areas

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

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