An Empirical Study of The Stock-Gilt Co-Movement in The UK Markets Using Copula Methods
DOI:
https://doi.org/10.62051/yc83qy38Keywords:
stock-gilt correlation; financial market; copula; macroeconomic analysis; tail dependency.Abstract
Using a variety of copula models, this study examines the correlation and tail dependency between UK stock market and gilt market across three distinct economic periods: the financial crisis, the Covid-19 pandemic and normal economic period (normal time period in between financial crisis and Covid-19 pandemic without economic instability), and investigates how these correlations differ, with a particular focus on the extreme correlation. The analysis reveals that the UK stock market and gilt market are exhibiting certain correlations in all three time periods, but there’s significant variations in the strength of the correlations and tail dependencies.
Downloads
References
[1] AghaKouchak, A., Sellars, S., and Sorooshian, S., 2012. Methods of Tail Dependence Estimation. In AghaKouchak, A., Easterling, D., Hsu, C., Schubert,S., Sorooshian , S., Extremes in a Changing Climate 163-179. Springer.
[2] Agnihotri, S., 2017. Copula Approach: Correlation Between Bond Market and Stock Market, Between Developed and Emerging Economies. International Journal for Innovative Research in Multidisciplinary Field 3 (2), 203-209.
[3] Baele, L., Bekaert, G., and Inghelbrecht, K., 2010. The Determinants of Stock and Bond Return Comovements. The Review of Financial Studies 23 (6), 2374–2428.
[4] Baele, L., and Holle, F.V., 2017. Stock-Bond Correlations, Macroeconomic Regimes and Monetary Policy. Working Paper, Tilburg University.
[5] Campbell, J.Y., Sunderam, A., and Viceira, L.M., 2017. Inflation bets or deflation hedges? The changing risks of nominal bonds. Critical Finance Review 6 (2), 263–301.
[6] Chui, C.M., and Yang, J., 2012. Extreme correlation of stock and bond futures market: International evidence. Financial Review 47 (3), 565-587.
[7] Christiansen, C., and Ranaldo, A., 2007. Realized bond-stock correlation: Macroeconomic announcement effects. The Journal of Future Markets 27 (5), 439–469.
[8] David, A., and Veronesi, P., 2013. What ties return volatilities to fundamentals and price valuations? Journal of Political Economy 121 (4), 682–746.
[9] Li, E.X.N., Zha, T., Zhang, J., Zhou, H., 2022. Does fiscal policy matter for stock-bond return correlation? Journal of Monetary Economics 128, 20-34.
[10] Haugh, M., 2016. An Introduction to Copulas. Working Paper, Columbia University.
[11] Longin, F., and Solnik, B., 2002. Extreme Correlation of International Equity Markets. The Journal of Finance 56 (2), 649-676.
[12] Schmidt, R., 2005. Tail Dependence. In Cizek, P., Härdle, W.K., Weron, R., Statistical Tools for Finance and Insurance 65-91. Springer.
[13] Song, D., 2017. Bond market exposures to macroeconomic and monetary policy risks. The Review of Financial Studies 30 (8), 2761–2817.
Downloads
Published
Conference Proceedings Volume
Section
License
Copyright (c) 2024 Transactions on Economics, Business and Management Research
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
How to Cite
