Abstract
This study investigates stock-bond correlation in 17 countries of emerging markets during 2011 to 2018 using monthly price data. Data was analyzed using ARCH-LM test, GJR GARCH and Multivariate GARCH type Asymmetric DCC model. Findings of this paper revealed that sequence of return series are stationary containing white noise error, past return volatilities do not have the ability to predict future volatilities and conditional volatility is higher and negative momentum of the market increase the correlation of stock and bond in a country or vice versa and hence increase the diversification benefit for asset allocation in a portfolio construction and provide hedging assets characteristics among countries and it is found that there is a co-movement between stock and bond in a country of emerging markets.
Highlights
1.1 Background to the StudyThis paper investigates the stock and bond relation of various countries of emerging markets
Findings of this paper revealed that sequence of return series are stationary containing white noise error, past return volatilities do not have the ability to predict future volatilities and conditional volatility is higher and negative momentum of the market increase the correlation of stock and bond in a country or vice versa and increase the diversification benefit for asset allocation in a portfolio construction and provide hedging assets characteristics among countries and it is found that there is a comovement between stock and bond in a country of emerging markets
In this paper investigating the stock and bond correlation in emerging markets of 17 countries from 2011 to 2018 of monthly data and it’s essential to understanding trend analysis of the data and found that all countries follow the same pattern in the response to economic fluctuation except few countries which shows higher prices and yield that compensate with taking risk e.g. Greece suffering low liquidity in debt influencing higher rate of interest in bonds and Turkey distressed with political and economic situation that hits it’s stock market
Summary
1.1 Background to the StudyThis paper investigates the stock and bond relation of various countries of emerging markets. Stocks and Bonds play an important role for investment and portfolio making decision These two financial asset classes correlation can be effected because future cash flows and discount rate changes due to economic circumstances. Economic and monetary policy unpredictability leads to “flight to quality” phenomena which means the periods of high uncertainty increases the price of bond market as compared to stock market and their correlation is weaker even negative. This is the phenomena of transfer of money to bond market when risk of stock market is high. Stocks hedge the inflation risk involve in bonds and bonds hedge economic risk associated with stocks
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