Stock vs. Bond yields and demographic fluctuations

Abstract

This paper analyzes the strong comovement between real stock and nominal bond yields at generational (low) frequencies. Life-cycle patterns in savings behavior in an overlapping generations model with cash-in-advance constraints explain this persistent comovement between financial yields. We argue that the slow-evolving time-series covariation due to changing population age structure accounts for the equilibrium relation between stock and bond markets. As a result, by exploiting the demographic information into distant future, the forecasting performance of valuation models improves. Finally, using a crosscountry panel, we document the cross-sectional variation of the demographic effect and explain the crosscountry differences in comovement between stock and bond markets.

Uzun Dönemli Ortak Değişkenlik Çerçevesinde Fisher Hipotezi: İngiltere Örneği

“…MW method is used in other fields as well: Real interest rates (Lunsford, 2017;Lunsford & West, 2019); real stock and nominal bond yields (Gozluklu & Morin, 2019); energy sector (Atil et al, 2020;Shahbaz et al, 2023), long-run purchasing power parity (Papell & Prodan, 2020); loan-to-value ratios (Jensen et al, 2020); real exchange rates and economic fundamentals (Grisse & Scheidegger, 2021); measuring the relationships among long-run trend-cycle (Kunitomo & Sato, 2021); relationship between total factor productivity and the relative investment price (Moura, 2021); long-run correlation of inflation with money growth and nominal interest rates (West & Cao, 2022); and comparison with other methods (Chen et al, 2022;Yamada, 2020 and.…”

My name is bond, Pecorino Bond

“…Interest rates are important on a personal level—they guide our decisions to save or to borrow for major purchases (such as houses, cars, and appliances, to give a few examples). From the macroeconomic standpoint, interest rates have an impact on consumer spending and business investment (Altavilla et al , 2019; Gozluklu and Morin, 2019).…”