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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 (2016) In Journal of Financial Econometrics 14(3). p.617-642
Abstract
We investigate long-run stock–bond correlation using a model that combines the dynamic conditional correlation model with the mixed-data sampling approach and allows long-run correlation to be affected by macro-finance factors (historical and forecasts). We use macro-finance factors related to inflation and interest rates, illiquidity, state of the economy, and market uncertainty. Macro-finance factors, particularly their forecasts, are good at forecasting long-run stock–bond correlation. Supporting the flight-to-quality phenomenon, long-run correlation tends to be small and negative when the economy is weak.
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
DCC-MIDAS model, Long-run correlation, Macro-finance factors, Stock–bond correlation
in
Journal of Financial Econometrics
volume
14
issue
3
pages
617 - 642
publisher
Oxford University Press
ISSN
1479-8409
DOI
10.1093/jjfinec/nbv025
language
English
LU publication?
yes
id
862d7c4d-b44b-464f-a255-2c98f663855a (old id 8167159)
date added to LUP
2015-11-12 15:21:10
date last changed
2019-11-13 10:57:56
@article{862d7c4d-b44b-464f-a255-2c98f663855a,
  abstract     = {We investigate long-run stock–bond correlation using a model that combines the dynamic conditional correlation model with the mixed-data sampling approach and allows long-run correlation to be affected by macro-finance factors (historical and forecasts). We use macro-finance factors related to inflation and interest rates, illiquidity, state of the economy, and market uncertainty. Macro-finance factors, particularly their forecasts, are good at forecasting long-run stock–bond correlation. Supporting the flight-to-quality phenomenon, long-run correlation tends to be small and negative when the economy is weak.},
  author       = {Asgharian, Hossein and Christiansen, Charlotte and Hou, Ai Jun},
  issn         = {1479-8409},
  keyword      = {DCC-MIDAS model,Long-run correlation,Macro-finance factors,Stock–bond correlation},
  language     = {eng},
  number       = {3},
  pages        = {617--642},
  publisher    = {Oxford University Press},
  series       = {Journal of Financial Econometrics},
  title        = {Macro-Finance Determinants of the Long-Run Stock-Bond Correlation: The DCC-MIDAS Specification},
  url          = {http://dx.doi.org/10.1093/jjfinec/nbv025},
  volume       = {14},
  year         = {2016},
}