Stock-bond co-movements and cross-country linkages
by Dirk G. Baur
International Journal of Banking, Accounting and Finance (IJBAAF), Vol. 2, No. 2, 2010

Abstract: This study analyses the correlation of stock and bond indices for eight developed countries. We compare a country's stock-bond linkages with cross-country linkages and find that the former exhibit a negative trend in contrast to the positive trend observed for cross-country stock market and bond market linkages. We show that the decline of the stock-bond correlation in recent years can be explained with a more frequent portfolio rebalancing of investors due to the globalisation of securities markets and implied lower international diversification benefits across similar asset classes. A test for temporal commonalities of changes in cross-country and stock-bond linkages indicates that flight-to-quality from stocks to bonds and cross-country stock market contagion occurs simultaneously.

Online publication date: Sun, 25-Apr-2010

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