Empirical evidence on the stock-bond correlation

57 Pages Posted: 26 Jul 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: July 19, 2023

Abstract

The correlation between stock and bond returns is a cornerstone of asset allocation decisions. The correlation can move considerably over time, which can have a large impact on portfolio construction. Our empirical evidence points to inflation and real returns on short-term bonds, and the uncertainty surrounding inflation as important factors for understanding the sign and magnitude of the stock-bond correlation. Our historical analyses across countries suggest that our findings are robust. We apply these insights to analyze the implications of a shift in stock-bond correlation regime for the risk of multi-asset class portfolios and for bonds 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 (July 19, 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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