Time-varying dependence between stock and government bond returns: International evidence with dynamic copulas

•We estimate time varying dependences between stock and bond returns.•The approach used is a combination of DCC-GARCH and time varying copulas.•The results show that the linkage is either positive or negative.•The negative dependence is broken for some peripheral euro area countries.

This paper investigates the dependence pattern between stock and long-term government bond returns for a wide range of developed countries over the last two decades by using a dynamic DCC-GARCH-copula model. This approach allows obtaining a flexible and comprehensive description of the time variation in the linkage between stock and bond markets.The empirical results show that the dependence structure between stock and 10-year government bond returns varies significantly over time for most countries. In particular, a positive stock–bond association is observed during the 1990s, while the relationship becomes negative from the early 2000s, supporting the presence of flight-to-quality effects. In addition, no evidence of asymmetric and tail dependence is found for the vast majority of countries.