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Economic policy uncertainty shocks and stock–bond correlations: Evidence from the US market

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  • Li, Xiao-Ming
  • Zhang, Bing
  • Gao, Ruzhao

Abstract

This paper examines the effects of economic policy uncertainty shocks on stock–bond correlations for the US market. We devise a general framework which distinguishes a positive shock from a negative one and nests either as its special case. The results show that innovations in the policy uncertainty index impact negatively and asymmetrically on the subsequent stock–bond correlations which are characterized by a structural break and positive-type asymmetry.

Suggested Citation

  • Li, Xiao-Ming & Zhang, Bing & Gao, Ruzhao, 2015. "Economic policy uncertainty shocks and stock–bond correlations: Evidence from the US market," Economics Letters, Elsevier, vol. 132(C), pages 91-96.
    • Handle: RePEc:eee:ecolet:v:132:y:2015:i:c:p:91-96
    DOI: 10.1016/j.econlet.2015.04.013
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    References listed on IDEAS

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    1. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Oxford University Press, vol. 4(4), pages 537-572.
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    More about this item

    Keywords

    Policy uncertainty shock; Stock–bond correlation; Asymmetry;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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