24 Pages Posted: 5 Oct 2011 Last revised: 1 Oct 2012
Date Written: September 17, 2012
This paper aims to advance empirical knowledge of stock-bonds comovements thanks to the specific context of the pre-1914 French market. This period allows the measurement of the conditional correlation without any inflation thanks to the Gold standard regime. A multivariate Dynamic Conditional Correlation GARCH (DCC GARCH) model is implemented on four recently developed market indices to assess the varying correlation between stock and bond returns. We do obtain fluctuating but always highly positive conditional stock-bond correlations over a period of 76 years. This high correlation is observed not only with government bonds, as is the case in the majority of studies on this subject, but also with corporate bonds. Several macroeconomic factors are also tested to estimate their impact on the conditional correlations.
Keywords: Stock-Bond Return Correlation, DCC GARCH Model, Cointegration, Causality, Paris Bourse
JEL Classification: G11, G14, N23
Suggested Citation: Suggested Citation
Rezaee, Amir and Le Bris, David, Stock-Bond Comovements During Non-Inflationary Period: Natural Experience from the Paris Bourse (September 17, 2012). Available at SSRN: https://ssrn.com/abstract=1938541 or http://dx.doi.org/10.2139/ssrn.1938541