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Macro-Finance Determinants of the Long-Run Stock-Bond Correlation: The DCC-MIDAS Specification

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Author

Summary, in English

We investigate the long-run stock-bond correlation using a novel model that combines the dynamic conditional correlation model with the mixed-data sampling approach. The long-run correlation is affected by both macro-finance variables (historical and forecasts) and the lagged realized correlation itself. Macro-finance variables and the lagged realized correlation are simultaneously significant in forecasting the long-run stock-bond correlation. The behavior of the long-run stock-bond correlation is very different when estimated taking the macro-finance variables into account. Supporting the flight-to-quality phenomenon for the total stock-bond correlation, the long-run correlation tends to be small/negative when the economy is weak.

Publishing year

2014

Language

English

Publication/Series

Working Paper / Department of Economics, School of Economics and Management, Lund University

Issue

37

Document type

Working paper

Publisher

Department of Economics, Lund University

Topic

  • Economics
  • Business Administration

Keywords

  • DCC-MIDAS model
  • Long-run correlation
  • Macro-finance variables
  • Stock-bond correlation

Status

Published