Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/31362
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Interrelation and Spillover Effects between Stocks and Bonds: Cross-Market and Cross-Asset Evidence
Author(s): McMillan, David
Keywords: Causality
Volatility
Correlation
VAR
Returns
Bonds
Spillovers
Stocks
Issue Date: 17-Jun-2020
Citation: McMillan D (2020) Interrelation and Spillover Effects between Stocks and Bonds: Cross-Market and Cross-Asset Evidence. Studies in Economics and Finance. https://doi.org/10.1108/SEF-08-2019-0330
Abstract: Purpose: This paper examines the behaviour, both contemporaneous and causal, of stock and bond markets across four major international countries. Design/Methodology/Approach: We generate volatility and correlations using the realised volatility approach and implement a general VAR approach to examine causality and spillovers. Findings: While results confirm that same asset-cross country return correlations and spillovers increase over time, the same in not true with variance and covariance behaviour. Volatility spillovers across countries exhibit a substantial amount of time-variation, however, there is no evidence of trending in any direction. Equally, cross asset-same country correlations exhibit both negative and positive values. Further, we report an inverse relation between same asset-cross country return correlations and cross asset-same country return correlations i.e., the stock return correlation across countries increases at the same time the stock and bond return correlation within each country declines. Moreover, results show that the stock and bond return correlations exhibit commonality across countries. Results also demonstrate that stock returns lead movement in bond returns, while US stock and bond returns have predictive power other country stock and bond returns. In terms of the markets analysed, Japan exhibit a distinct nature compared with those of Germany, the UK and the US. Originality The results presented here provide a detailed characterisation of how assets interact both with each other and cross countries and should be of interest to portfolio managers, policy-makers and those interested in modelling cross market behaviour. Notably, we reveal key differences between the behaviour of stocks and bonds and across different countries.
DOI Link: 10.1108/SEF-08-2019-0330
Rights: Publisher policy allows this work to be made available in this repository. Published in Studies in Economics and Finance by Emerald. The original publication is available at: https://doi-org/10.1108/SEF-08-2019-0330. This article is deposited under the Creative Commons Attribution Non-commercial International Licence 4.0 (CC BY-NC 4.0). Any reuse is allowed in accordance with the terms outlined by the licence (https://creativecommons.org/licenses/by-nc/4.0/). To reuse the AAM for commercial purposes, permission should be sought by contacting permissions@emeraldinsight.com.
Notes: Output Status: Forthcoming/Available Online
Licence URL(s): http://creativecommons.org/licenses/by-nc/4.0/

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