International stock–bond correlations in a simple affine asset pricing model

d’Addona, Stefano; Kind, Axel

doi:10.1016/j.jbankfin.2005.10.007

Cited by 68 publications

(20 citation statements)

References 44 publications

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“…Second, one can model changing second moments in stock returns, possibly deriving those returns from primitive assumptions on the dividend process, as in the recent literature on a¢ ne models of stock and bond pricing (Mamaysky 2002, Bekaert, Engstrom, and Grenadier 2005, d'Addona and Kind 2006, Bekaert, Engstrom, and Xing 2009.…”

Section: Resultsmentioning

confidence: 99%

“…Models such as those of Dai and Singleton (2002) and Sangvinatsos and Wachter (2005) achieve a good …t to the historical term structure, but this literature uses latent factors that are hard to interpret economically. Some papers have extended the essentially a¢ ne approach to model stock and bond prices jointly (Mamaysky 2002, d'Addona and Kind 2006, Bekaert, Engstrom, and Grenadier 2010. Eraker (2008), Hasseltoft (2009), and Bansal and Shaliastovich (2013) price both stocks and bonds using the consumption-based long-run risks model of Bansal and Yaron (2004).…”

Section: Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds

Campbell¹,

Sunderam²,

Viceira³

2009

228

196

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The covariance between US Treasury bond returns and stock returns has moved considerably over time. While it was slightly positive on average in the period 1953-2009, it was unusually high in the early 1980's and negative in the early 2000's, partucularly in the downturns of 2000-02 and 2007-09. This paper specifies and estimates a model in which the nominal term structure of interest rates is driven by four state variables: the real interest rate, temporary and permanent components of expected inflation, and the "nominal-real covariance" of inflation and the real interest rate with the real economy. The last of these state variables enables the model to fit the changing covariance of bond and stock returns. Log bond yields and term premia are quadratic in these state variables, with term premia determined by the nominal-real covariance. The concavity of the yield curve --the level of intermediate-term bond yields, relative to the average of short-and long-term bond yields --is a good proxy for the level of term premia. The nominal-real covariance has declined since the early 1980's, driving down term premia.

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Section: Resultsmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds

Campbell¹,

Sunderam²,

Viceira³

2009

228

196

View full text Add to dashboard Cite

show abstract

“…First, we can use alternative estimation methods, such as the Efficient Method of Moments of Gallant and Tauchen (1996), to properly handle econometric difficulties caused by the nonlinearity of our term structure model. Second, we can derive stock returns from primitive assumptions on the dividend process, as in the recent literature on affine models of stock and bond pricing (Mamaysky 2002, Bekaert, Engstrom, and Grenadier 2004, d'Addona and Kind 2005.…”

Section: Resultsmentioning

confidence: 99%

Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds

2009

View full text Add to dashboard Cite

The covariance between US Treasury bond returns and stock returns has moved considerably over time. While it was slightly positive on average in the period 1953-2005, it was particularly high in the early 1980's and negative in the early 2000's. This paper specifies and estimates a model in which the nominal term structure of interest rates is driven by four state variables: the real interest rate, risk aversion, expected inflation, and the covariance between nominal variables and the real economy. Log nominal bond yields and term premia are quadratic in these state variables, with term premia determined mainly by the product of risk aversion and the nominal-real covariance. The concavity of the yield curve-the level of intermediate-term bond yields, relative to the average of short-and long-term bond yields-is a good proxy for the level of term premia.

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“…The endogenous correlation between stock and bonds has been explained by using the Asset Pricing Model to find the fundamental drivers that affect the pricing of stock and bonds for post-war G7 countries. The result showed that the factor increasing the correlation between stocks and bonds was the volatility in the Real Interest Rates (d" Addona & Kind, 2006).…”

Section: Literature Reviewmentioning

confidence: 99%

Evidence of Fear in Fixed Income and Bourses: A Study on Certain G-7 Economies

Janardan

2019

UJBM

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The paper aimed to predict the Fear index for certain G7 countries (Canada, France, Germany and Japan) considering the two variables Stock Price (Close) and Bond Yield(LBY). Daily data were analyzed for the period from April 2013 to June 2017. The main purpose was to identify the degree in which fear affecting the stock market percolates to Fixed Income Instruments. Using Panel Data Regression (Fixed Effect Model) the two variables were able to predict the VIX index and the model was found to be robust in nature. The major finding is that Fixed Income and stocks share a negative relationship with VIX (Fear Index).

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International stock–bond correlations in a simple affine asset pricing model

Cited by 68 publications

References 44 publications

Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds

Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds

Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds

Evidence of Fear in Fixed Income and Bourses: A Study on Certain G-7 Economies

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