Empirical evidence on the stock-bond correlation

Roderick Molenaar; Edouard Senechal; Laurens Swinkels; Zhenping Wang

doi:10.2139/ssrn.4514947

Empirical evidence on the stock-bond correlation

Roderick Molenaar, Edouard Senechal, Laurens Swinkels, Zhenping Wang

Business Economics

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

The correlation between stock and bond returns is a cornerstone of asset allocation decisions. History reveals abrupt regime shifts in correlation after long periods of relative stability. We investigate the drivers of the correlation between stocks and bonds and find that inflation, real rates, and government credit worthiness are important explanatory variables. We examine the implications of a shift in the stock-bond correlation and find that increases are associated with higher multi-asset portfolio risk and higher bond risk premia.

Original language	English
Journal	Financial Analysts Journal
DOIs	https://doi.org/10.2139/ssrn.4514947 https://doi.org/10.1080/0015198X.2024.2317333
Publication status	Accepted/In press - 2024

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10.2139/ssrn.4514947
10.1080/0015198X.2024.2317333Licence: CC BY

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title = "Empirical evidence on the stock-bond correlation",

abstract = "The correlation between stock and bond returns is a cornerstone of asset allocation decisions. History reveals abrupt regime shifts in correlation after long periods of relative stability. We investigate the drivers of the correlation between stocks and bonds and find that inflation, real rates, and government credit worthiness are important explanatory variables. We examine the implications of a shift in the stock-bond correlation and find that increases are associated with higher multi-asset portfolio risk and higher bond risk premia.",

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AU - Molenaar, Roderick

AU - Senechal, Edouard

AU - Swinkels, Laurens

AU - Wang, Zhenping

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Y1 - 2024

N2 - The correlation between stock and bond returns is a cornerstone of asset allocation decisions. History reveals abrupt regime shifts in correlation after long periods of relative stability. We investigate the drivers of the correlation between stocks and bonds and find that inflation, real rates, and government credit worthiness are important explanatory variables. We examine the implications of a shift in the stock-bond correlation and find that increases are associated with higher multi-asset portfolio risk and higher bond risk premia.

AB - The correlation between stock and bond returns is a cornerstone of asset allocation decisions. History reveals abrupt regime shifts in correlation after long periods of relative stability. We investigate the drivers of the correlation between stocks and bonds and find that inflation, real rates, and government credit worthiness are important explanatory variables. We examine the implications of a shift in the stock-bond correlation and find that increases are associated with higher multi-asset portfolio risk and higher bond risk premia.

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DO - 10.2139/ssrn.4514947

M3 - Article

SN - 0015-198X

JO - Financial Analysts Journal

JF - Financial Analysts Journal

ER -

Empirical evidence on the stock-bond correlation

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