Effects of Macroeconomic Uncertainty on the Stock and Bond Markets

14 Pages Posted: 24 Mar 2015 Last revised: 26 Mar 2015

See all articles by Hossein Asgharian

Hossein Asgharian

Lund University - Department of Economics; Knut Wicksell Centre for Financial Studies

Charlotte Christiansen

Aarhus University - CREATES

Ai Jun Hou

Stockholm University

Date Written: March 23, 2015

Abstract

In this paper we show that the long-run stock and bond volatility and the long-run stock-bond correlation depend on macroeconomic uncertainty. We use the mixed data sampling (MIDAS) econometric approach. The findings are in accordance with the flight-to-quality phenomenon when macroeconomic uncertainty is high.

Keywords: DCC-MIDAS model; GARCH-MIDAS model; Macroeconomic uncertainty index; Stock-bond correlation; Stock volatility; Bond volatility

JEL Classification: C32; C58; E32; E44; G11; G12

Suggested Citation

Asgharian, Hossein and Christiansen, Charlotte and Hou, Ai Jun, Effects of Macroeconomic Uncertainty on the Stock and Bond Markets (March 23, 2015). Available at SSRN: https://ssrn.com/abstract=2583928 or http://dx.doi.org/10.2139/ssrn.2583928

Hossein Asgharian

Lund University - Department of Economics; Knut Wicksell Centre for Financial Studies ( email )

P.O. Box 7082
S-220 07 Lund
Sweden
046-222-86-87 (Phone)

Charlotte Christiansen (Contact Author)

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus V, DK 8210
Denmark

Ai Jun Hou

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

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