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STOCK‐BOND CO‐MOVEMENTS AND FLIGHT‐TO‐QUALITY IN G7 COUNTRIES: A TIME‐FREQUENCY ANALYSIS
Author(s) -
Bayraci Selcuk,
Demiralay Sercan,
Gencer Hatice Gaye
Publication year - 2018
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/boer.12118
Subject(s) - bond , economics , stock (firearms) , econometrics , stock market , wavelet , equity (law) , investment decisions , monetary economics , financial economics , behavioral economics , finance , computer science , geography , archaeology , artificial intelligence , political science , law , context (archaeology)
ABSTRACT This paper examines co‐movement between stock returns and changes in 10‐year government bond yields as well as flight‐to‐quality behaviour in G7 countries. We conduct the wavelet squared coherence analysis to explore the dynamics in both time and frequency domain. Our results provide evidence of positive co‐movements, which vary over time and across investment horizon. The higher co‐movement is found to be more concentrated in the lower frequency bands. We further analyse the dynamic nature of the scale‐dependent wavelet correlations and find that the correlations are highly volatile and significantly increase across different time scales during the episodes of equity market turbulence. The increase in correlations reflects flights from stocks to safer bond investments as a result of dramatic changes in investor sentiment and risk aversion at times of market stress.