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The Correlation Between Treasury Securities and the Stock Market: A Study of Explanatory Variables

Svensson, Sandra and Dietzsch, Sebastian (2009)
Department of Economics
Abstract
The purpose of the thesis is to retrieve the correlation between treasury securities of different maturities and the stock market and find significant variables to explain this relationship. Correlation time series were retrieved and used as dependent variables in a multivariate regression in order to find significant explanatory variables. The theory includes prior research done on the relationship between the stock market and treasury securities. Further the stock market and treasury securities are studied in detail. The highest explanatory power for the model was found for the 10 year note and stock market correlation. Significant variables of main importance were the volume traded, federal funds rate return and the business cycle.... (More)
The purpose of the thesis is to retrieve the correlation between treasury securities of different maturities and the stock market and find significant variables to explain this relationship. Correlation time series were retrieved and used as dependent variables in a multivariate regression in order to find significant explanatory variables. The theory includes prior research done on the relationship between the stock market and treasury securities. Further the stock market and treasury securities are studied in detail. The highest explanatory power for the model was found for the 10 year note and stock market correlation. Significant variables of main importance were the volume traded, federal funds rate return and the business cycle. Support for the flight into quality theory was retrieved, as well as evidence of the importance for variables based on macroeconomic factors for the three correlation series. (Less)
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@misc{1436737,
  abstract     = {The purpose of the thesis is to retrieve the correlation between treasury securities of different maturities and the stock market and find significant variables to explain this relationship. Correlation time series were retrieved and used as dependent variables in a multivariate regression in order to find significant explanatory variables. The theory includes prior research done on the relationship between the stock market and treasury securities. Further the stock market and treasury securities are studied in detail. The highest explanatory power for the model was found for the 10 year note and stock market correlation. Significant variables of main importance were the volume traded, federal funds rate return and the business cycle. Support for the flight into quality theory was retrieved, as well as evidence of the importance for variables based on macroeconomic factors for the three correlation series.},
  author       = {Svensson, Sandra and Dietzsch, Sebastian},
  keyword      = {Stock market,macroeconomic variables,treasury securities,flight into quality,bond-stock correlation,Economics, econometrics, economic theory, economic systems, economic policy,Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Correlation Between Treasury Securities and the Stock Market: A Study of Explanatory Variables},
  year         = {2009},
}