Effects of Macroeconomic Uncertainty on the Stock and Bond Markets
14 Pages Posted: 24 Mar 2015 Last revised: 26 Mar 2015
Date Written: March 23, 2015
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: Suggested Citation