Title: Stock-bond co-movements and cross-country linkages

Authors: Dirk G. Baur

Addresses: University of Technology, Sydney, P.O. Box 123, Broadway, NSW 2007, Australia

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.

Keywords: stock market co-movements; bond market co-movements; stock-bond co-movements; flight-to-quality; market contagion; stock markets; bond markets.

DOI: 10.1504/IJBAAF.2010.032848

International Journal of Banking, Accounting and Finance, 2010 Vol.2 No.2, pp.111 - 129

Published online: 25 Apr 2010 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article