Time-varying threshold dynamics of US bond yield spreads and Dow index returns Online publication date: Tue, 16-Jan-2024
by Nicholas R. Lee; Yih-Bey Lin; Ming-Jun Chen
International Journal of Monetary Economics and Finance (IJMEF), Vol. 16, No. 6, 2023
Abstract: Changes in the slope of the yield curve accompanied by rich instability in the stock market could lead to structural changes. This paper examines threshold relations between yield curve and stock market price movement applying the threshold vector error correction model (TVECM) with two regimes, usual and unusual regimes. We consider weekly spreads between the 10- and 2-year Treasury bonds yield curve (YC) and Dow index price (DJ) transformed by the log function. Besides, we further discuss the possibility of time-varying threshold relations across different subperiods. Our findings show that there is threshold relation from DJ to YC in the usual regime but bidirectional relations in the unusual regime, with stronger relation from DJ to YC. Furthermore, time-varying threshold dynamics of two variables can be detected at different times. Thus, our contribution is that yield curve slope change can drive big moves in stock prices.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Monetary Economics and Finance (IJMEF):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com
Our Blog 
Follow us on Twitter 
Visit us on Facebook