Empirical evidence on the stock-bond correlation

51 Pages Posted: 26 Jul 2023 Last revised: 7 Dec 2023

See all articles by Roderick Molenaar

Roderick Molenaar

Robeco Asset Management

Edouard Senechal

State of Wisconsin Investment Board

Laurens Swinkels

Erasmus University Rotterdam (EUR); Robeco Asset Management

Zhenping Wang

State of Wisconsin Investment Board

Date Written: December 5, 2023

Abstract

The correlation between stock and bond returns is a cornerstone of asset allocation decisions. History reveals abrupt regime shifts in correlation after long periods of relative stability. We investigate the drivers of the correlation between stocks and bonds and find that inflation, real rates, and government credit worthiness are important explanatory variables. We examine the implications of a shift in the stock-bond correlation and find that increases are associated with higher multi-asset portfolio risk and higher bond risk premia.

Keywords: Bonds, Correlation, Inflation, Interest rates, Stocks

JEL Classification: E30, E40, G10, G11, G12, G15

Suggested Citation

Molenaar, Roderick and Senechal, Edouard and Swinkels, Laurens and Wang, Zhenping, Empirical evidence on the stock-bond correlation (December 5, 2023). Available at SSRN: https://ssrn.com/abstract=4514947 or http://dx.doi.org/10.2139/ssrn.4514947

Roderick Molenaar

Robeco Asset Management ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

Edouard Senechal

State of Wisconsin Investment Board ( email )

121 E Wilson St
Madison, WI 53703
United States

HOME PAGE: http://www.swib.state.wi.us

Laurens Swinkels (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Asset Management ( email )

Rotterdam, 3000
Netherlands
+31 10 224 2470 (Phone)
+31 10 224 2110 (Fax)

Zhenping Wang

State of Wisconsin Investment Board ( email )

121 E Wilson St
Madison, WI 53703
United States

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