Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960944 | Journal of Financial Markets | 2015 | 19 Pages |
Abstract
We show that equity volatility serves as a determinant of future Treasury term-structure volatility over the recent October 1997 to June 2013 period. We find that equity volatility contains incrementally reliable information for the subsequent volatility of: (1) 10-year and 30-year bond futures returns, (2) the term-structure׳s level, and (3) the term-structure׳s slope. We present additional evidence that suggests a flight-to-quality/flight-from-quality pricing avenue is a likely contributor to the volatility linkages, where time-varying economic uncertainty can generate both a large positive serial correlation in stock volatility and a time-variation in the precautionary savings motive and diversification benefits of holding bonds.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Naresh Bansal, Robert A. Connolly, Chris Stivers,