The Stock-Bond Comovements in the Paris Bourse: Historical Evidence
17 Pages Posted: 12 Oct 2011
Date Written: October 12, 2011
Using some recently developed Paris Bourse 19th century price indexes; we study the stock-bond monthly return comovement for a 76 years long period. The comovements of stocks not only with government bonds, like majority of studies on this subject, but also with corporate bonds have been considered in this paper. A multivariate Dynamic conditional correlation GARCH(DCC GARCH) model has been implemented to assess the stock-bond return time varying correlation. The model succeeds to capture well enough the behavior of stocks and bonds returns. We do obtain variable but always highly positive conditional stock-bond correlations. The Granger causality tests which we have conducted per sub periods shows as we approach to the end of the 19th century the corporate bond market becomes more and more dominant in term of price adjustment and therefore more efficient.
Keywords: Stock-Bond Return Correlation, DCC GARCH Model, Cointegration, Causality
JEL Classification: G11, G14, N23
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