The Danish Stock and Bond Markets: Comovement, Return Predictability and Variance Decomposition

42 Pages Posted: 13 Jul 2000

See all articles by Tom Engsted

Tom Engsted

University of Aarhus - CREATES

Carsten Tanggaard

affiliation not provided to SSRN

Date Written: May 2000

Abstract

VAR models of the kind developed by Shiller and Beltratti (1992) and Campbell and Ammer (1993) are used to analyze the Danish stock and bond markets and their comovement. In contrast to these papers, however, VAR parameter estimates are bias-adjusted and VAR generated statistics, including their standard errors and confidence intervals, are computed using bootstrap simulation. In addition, we modify the Campbell-Ammer variance decomposition such that it can handle returns from a long-term coupon bond. Some parts of the results for the Danish stock and bond markets are quite similar to the US results reported by Shiller and Beltratti and Campbell and Ammer, but other parts stand in sharp contrast to the results for the US. The most important differences between the US and Denmark are that in Denmark news about higher future inflation lead to an increase in expected future stock returns, and that excess stock return news and excess bond return news are negatively correlated.

JEL Classification: C15, C32, G12

Suggested Citation

Engsted, Tom and Tanggaard, Carsten, The Danish Stock and Bond Markets: Comovement, Return Predictability and Variance Decomposition (May 2000). Available at SSRN: https://ssrn.com/abstract=230868 or http://dx.doi.org/10.2139/ssrn.230868

Tom Engsted (Contact Author)

University of Aarhus - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Carsten Tanggaard

affiliation not provided to SSRN

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