Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
963677 | Journal of International Financial Markets, Institutions and Money | 2006 | 16 Pages |
Abstract
A two-factor no-arbitrage model is used to provide a theoretical link between stock and bond market volatility. While this model suggests that short-term interest rate volatility may, at least in part, drive both stock and bond market volatility, the empirical evidence suggests that past bond market volatility affects both markets and feeds back into short-term yield volatility. The empirical modelling goes on to examine the (time-varying) correlation structure between volatility in the stock and bond markets and finds that the sign of this correlation has reversed over the last 20 years. This has important implications far portfolio selection in financial markets.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
James M. Steeley,