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Macro-Finance Determinants of the Long-Run Stock-Bond Correlation: The DCC-MIDAS Specification

Asgharian, Hossein LU ; Christiansen, Charlotte and HOU, Ai Jun LU (2014) In Working Paper / Department of Economics, School of Economics and Management, Lund University
Abstract
We investigate the long-run stock-bond correlation using a novel model that combines the dynamic conditional correlation model with the mixed-data sampling approach. The long-run correlation is affected by both macro-finance variables (historical and forecasts) and the lagged realized correlation itself. Macro-finance variables and the lagged realized correlation are simultaneously significant in forecasting the long-run stock-bond correlation. The behavior of the long-run stock-bond correlation is very different when estimated taking the macro-finance variables into account. Supporting the flight-to-quality phenomenon for the total stock-bond correlation, the long-run correlation tends to be small/negative when the economy is weak.
Please use this url to cite or link to this publication:
author
; and
organization
publishing date
type
Working paper
publication status
published
subject
keywords
DCC-MIDAS model, Long-run correlation, Macro-finance variables, Stock-bond correlation
in
Working Paper / Department of Economics, School of Economics and Management, Lund University
issue
37
pages
39 pages
publisher
Department of Economics, Lund University
language
English
LU publication?
yes
id
0996a67f-48e9-4899-b3e9-d08e17701e4b (old id 4814678)
alternative location
http://swopec.hhs.se/lunewp/abs/lunewp2014_037.htm
date added to LUP
2016-04-04 10:00:41
date last changed
2018-11-21 20:56:12
@misc{0996a67f-48e9-4899-b3e9-d08e17701e4b,
  abstract     = {We investigate the long-run stock-bond correlation using a novel model that combines the dynamic conditional correlation model with the mixed-data sampling approach. The long-run correlation is affected by both macro-finance variables (historical and forecasts) and the lagged realized correlation itself. Macro-finance variables and the lagged realized correlation are simultaneously significant in forecasting the long-run stock-bond correlation. The behavior of the long-run stock-bond correlation is very different when estimated taking the macro-finance variables into account. Supporting the flight-to-quality phenomenon for the total stock-bond correlation, the long-run correlation tends to be small/negative when the economy is weak.},
  author       = {Asgharian, Hossein and Christiansen, Charlotte and HOU, Ai Jun},
  language     = {eng},
  note         = {Working Paper},
  number       = {37},
  publisher    = {Department of Economics, Lund University},
  series       = {Working Paper / Department of Economics, School of Economics and Management, Lund University},
  title        = {Macro-Finance Determinants of the Long-Run Stock-Bond Correlation: The DCC-MIDAS Specification},
  url          = {http://swopec.hhs.se/lunewp/abs/lunewp2014_037.htm},
  year         = {2014},
}