International Stock-Bond Correlations in a Simple Affine Asset Pricing Model

Posted: 23 Feb 2005 Last revised: 17 Apr 2013

See all articles by Stefano d'Addona

Stefano d'Addona

University of Roma Tre

Axel H. Kind

University of Konstanz

Date Written: February 20, 2004

Abstract

We use an affine asset pricing model to jointly value stocks and bonds. This enables us to derive endogenous correlations and to explain how economic fundamentals influence the correlation between stock and bond returns. The presented model is implemented for G7 post-war economies and its in-sample and out-of-sample performance is assessed by comparing the correlations generated by the model with conventional statistical measures. The affine framework developed in this paper is found to generate stock-bond correlations that are in line with empirically observed figures.

Keywords: Affine Pricing Models, Stock-Bond Correlations, G-7 Countries

JEL Classification: F30, G12, G15

Suggested Citation

d'Addona, Stefano and Kind, Axel H., International Stock-Bond Correlations in a Simple Affine Asset Pricing Model (February 20, 2004). Journal of Banking and Finance, Vol. 30, No. 10, 2006. Available at SSRN: https://ssrn.com/abstract=671364 or http://dx.doi.org/10.2139/ssrn.671364

Stefano D'Addona (Contact Author)

University of Roma Tre ( email )

Via Chiabrera, 199
Rome, 00145
Italy

Axel H. Kind

University of Konstanz

Universitätsstraße 10
Konstanz, D-78457
Germany

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