Risk and Policy Uncertainty on Stock–Bond Return Correlations: Evidence from the US Markets

Risk and Policy Uncertainty on Stock–Bond Return Correlations: Evidence from the US Markets

This paper investigates dynamic correlations of stock–bond returns for different stock indices and bond maturities. Evidence in the US shows that stock–bond relations are time-varying and display a negative trend. The stock–bond correlations are negatively correlated with implied volatilities in sto...

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Main Author: Thomas C. Chiang
Format: Article
Language:English
Published: MDPI AG 2020-06-01
Series:Risks
Subjects:
stock–bond correlation
VIX
economic policy uncertainty
monetary policy uncertainty
fiscal policy uncertainty
Online Access:https://www.mdpi.com/2227-9091/8/2/58
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spelling doaj-9fc455176a184cbea37fcddebac2b71c2020-11-25T03:18:12ZengMDPI AGRisks2227-90912020-06-018585810.3390/risks8020058Risk and Policy Uncertainty on Stock–Bond Return Correlations: Evidence from the US MarketsThomas C. Chiang0Department of Finance, LeBow College of Business, Drexel University, Philadelphia, PA 19104, USAThis paper investigates dynamic correlations of stock–bond returns for different stock indices and bond maturities. Evidence in the US shows that stock–bond relations are time-varying and display a negative trend. The stock–bond correlations are negatively correlated with implied volatilities in stock and bond markets. Tests show that stock–bond relations are positively correlated with economic policy uncertainty, however, are negatively correlated with the monetary policy and fiscal policy uncertainties. Correlation coefficients between stock and bond returns are positively related to total policy uncertainty for returns of the Dow-Jones Industrial Average (DJIA) and the S&P 500 Value stock index (VALUE), but negatively correlated with returns of S&P500 (Total market), the NASDAQ Composite Index (NASDAQ), and the RUSSELL 2000 (RUSSELL).https://www.mdpi.com/2227-9091/8/2/58stock–bond correlationVIXeconomic policy uncertaintymonetary policy uncertaintyfiscal policy uncertainty
collection DOAJ
language English
format Article
sources DOAJ
author Thomas C. Chiang
spellingShingle Thomas C. Chiang
Risk and Policy Uncertainty on Stock–Bond Return Correlations: Evidence from the US Markets
Risks
stock–bond correlation
VIX
economic policy uncertainty
monetary policy uncertainty
fiscal policy uncertainty
author_facet Thomas C. Chiang
author_sort Thomas C. Chiang
title Risk and Policy Uncertainty on Stock–Bond Return Correlations: Evidence from the US Markets
title_short Risk and Policy Uncertainty on Stock–Bond Return Correlations: Evidence from the US Markets
title_full Risk and Policy Uncertainty on Stock–Bond Return Correlations: Evidence from the US Markets
title_fullStr Risk and Policy Uncertainty on Stock–Bond Return Correlations: Evidence from the US Markets
title_full_unstemmed Risk and Policy Uncertainty on Stock–Bond Return Correlations: Evidence from the US Markets
title_sort risk and policy uncertainty on stock–bond return correlations: evidence from the us markets
publisher MDPI AG
series Risks
issn 2227-9091
publishDate 2020-06-01
description This paper investigates dynamic correlations of stock–bond returns for different stock indices and bond maturities. Evidence in the US shows that stock–bond relations are time-varying and display a negative trend. The stock–bond correlations are negatively correlated with implied volatilities in stock and bond markets. Tests show that stock–bond relations are positively correlated with economic policy uncertainty, however, are negatively correlated with the monetary policy and fiscal policy uncertainties. Correlation coefficients between stock and bond returns are positively related to total policy uncertainty for returns of the Dow-Jones Industrial Average (DJIA) and the S&P 500 Value stock index (VALUE), but negatively correlated with returns of S&P500 (Total market), the NASDAQ Composite Index (NASDAQ), and the RUSSELL 2000 (RUSSELL).
topic stock–bond correlation
VIX
economic policy uncertainty
monetary policy uncertainty
fiscal policy uncertainty
url https://www.mdpi.com/2227-9091/8/2/58
work_keys_str_mv AT thomascchiang riskandpolicyuncertaintyonstockbondreturncorrelationsevidencefromtheusmarkets
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