Economic policy uncertainty shocks and stock-bond correlations: Evidence from the US market

•Innovations in the policy uncertainty index impact negatively on the correlations.•We quantify the effects of policy uncertainty shocks on stock-bond correlations.•We adopt a novel approach to distinguishing between positive and negative shocks.•The advent of the Euro has not changed the sign of the effects.•Dynamic correlations are characterized by positive-type asymmetry.

This paper examines the effects of economic policy uncertainty shocks on stock-bond correlations for the US market. We devise a general framework which distinguishes a positive shock from a negative one and nests either as its special case. The results show that innovations in the policy uncertainty index impact negatively and asymmetrically on the subsequent stock-bond correlations which are characterized by a structural break and positive-type asymmetry.