The Correlation of Stock and Bond Returns: A Comparison between U.S. and Australia
نویسندگان
چکیده
Sufficient theory and evidence about comovement between stocks and bonds are documented in the past to suggest that volatility transmission exists, although a consensus to causation and prediction has yet to be reached. The portfolio theory accords both assets with complimentary characteristics, thus being a premise to our conjectures about cross-market linkages. As such, we investigate the cross-market informational dependence between these assets under disparate interest rate conditions of the U.S and Australia. With conditional variance as a proxy for volatility, we use the BEKKa matricular decomposition of the bivariate GARCH (1,1) model to examine the crossmarket contemporaneous effect of information arrival. Applying the model to the stock and bond indices of both countries, we find evidence of volatility spillover, thereby supporting the notion of informational dependence between each market. The Correlation of Stock and Bond Returns: A Comparison between U.S. and Australia
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