Common Shocks in Stocks and Bonds

72 Pages Posted: 27 Jun 2019 Last revised: 30 Apr 2020

See all articles by Anna Cieslak

Anna Cieslak

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Hao Pang

Duke University, Fuqua School of Business, Students

Date Written: June 22, 2019

Abstract

We propose a new approach to identify economic shocks (monetary, growth, and risk-premium news) from stock returns and Treasury yields. The method allows us to study the drivers of asset prices at a daily frequency over the last three-and-a-half decades. We analyze the content of news from the Fed, major macro announcements, and sources of time-varying stock-bond comovement. The results emphasize the importance of two risk-premium shocks—compensation for discount-rate and cash-flow news—which have different effects on stocks and bonds. The impact of the Fed on both risk premiums explains why stocks but not bonds earn high FOMC-day returns.

Suggested Citation

Cieslak, Anna and Pang, Hao, Common Shocks in Stocks and Bonds (June 22, 2019). Available at SSRN: https://ssrn.com/abstract=3409340 or http://dx.doi.org/10.2139/ssrn.3409340

Anna Cieslak (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919 660 7879 (Phone)

HOME PAGE: https://sites.google.com/site/ancieslak/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hao Pang

Duke University, Fuqua School of Business, Students ( email )

Durham, NC
United States

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