Spillover impact of the US unconventional monetary policy and uncertainties on stock-bond correlations

Abstract

This paper investigates the spillover impact of US unconventional monetary policy and uncertainty factors on the time-varying co-movements between the US stock market and 14 advanced countries? bond markets, as based on monthly data from January 2002, to October 2015, and utilising the conditional nonlinear quantile regression approach. The empirical results reveal that US unconventional monetary policy has an asymmetric positive effect on stock-bond market co-movements, with a nonlinear effect in France and Denmark and a strong effect in the UK and Finland. Further, US bond market uncertainty has heterogeneous effects on stock-bond market co-movements, with a nonlinear effect in France and Denmark and a strong effect in Finland and Sweden. In addition, default risk spread positively influences stock-bond market comovements across most countries for all quantiles. In contrast, stock-bond market co-movements negatively and symmetrically respond to the US stock market uncertainty in most countries. Finally, stock-bond co-movements exhibit mixed responses to US economic policy uncertainty across countries. Our results have valuable implications for international investors who allocate capital across developed countries? stock and bond markets. Our findings provide important information for financial communities with regard to diversification and hedging.

The Spillover Effects of US Unconventional Monetary Policy on Inflation and Non-Inflation Targeting Emerging Markets

“…This policy, known as QE, occurred at various intervals between 2008 and 2014, contributing to an expansion of global liquidity, some of which flowed into emerging markets. Several studies have examined the US spillover effects of unconventional monetary policy (Hadood and Gokmenoglu 2023;Rebucci et al 2022;Fratto et al 2021). The recent COVID-19 outbreak had a detrimental effect on the economy of emerging and advanced economies in March 2020.…”