Impact of financial market uncertainty and macroeconomic factors on stock–bond correlation in emerging markets

This paper examines the impact of global financial market uncertainty and domestic macroeconomic factors on stock–bond correlation in emerging markets. In particular, by applying the wavelet analysis approach, we are able to examine stock–bond correlations over different time horizons in ten emergin...

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Bibliographic Details
Published in:	Research in international business and finance 2016-01, Vol.36, p.41-51
Main Authors:	Dimic, Nebojsa, Kiviaho, Jarno, Piljak, Vanja, Äijö, Janne
Format:	Article
Language:	eng
Subjects:	Emerging markets Financial market uncertainty Macroeconomic factors Stock–bond correlation Wavelet analysis
Online Access:	Get full text
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Summary:	This paper examines the impact of global financial market uncertainty and domestic macroeconomic factors on stock–bond correlation in emerging markets. In particular, by applying the wavelet analysis approach, we are able to examine stock–bond correlations over different time horizons in ten emerging markets. We find that stock–bond correlation patterns vary significantly between the time horizons. In particular, the correlation in short horizon changes the sign rapidly showing sustainable negative episodes while the correlation in long horizon stays positive most of the time. The most important factor influencing stock–bond correlation in short horizon is the monetary policy stance, while the factors with the greatest long-term impact are inflation and stock market uncertainty. Finally, global stock market uncertainty plays a more significant role than global bond market uncertainty in explaining stock–bond correlations in emerging markets.
ISSN:	0275-5319 1878-3384