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Impact of US unconventional monetary policy on dynamic stock-bond correlations: Portfolio rebalancing and signalling channel effects

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  • Gokmenoglu, Korhan K.
  • Hadood, Abobaker Al.Al.

Abstract

This paper investigates the impacts of both the portfolio rebalancing and signalling channel effects associated with US unconventional monetary policy on the dynamic correlation between the stock and bond markets at different levels of stock-bond market correlation distributions. The empirical results reveal that the portfolio rebalancing channel has a strong and predominantly negative effect on the dynamic stock-bond market correlations. In contrast, the signalling channel positively affects the dynamic stock-bond market correlations. The results also provide evidence of an asymmetric effect at the lower quantiles. These findings hence provide valuable information for policymakers, traders and portfolio managers.

Suggested Citation

  • Gokmenoglu, Korhan K. & Hadood, Abobaker Al.Al., 2020. "Impact of US unconventional monetary policy on dynamic stock-bond correlations: Portfolio rebalancing and signalling channel effects," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612318307323
    DOI: 10.1016/j.frl.2019.05.003
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    4. Wan Wei & Susan Pozo & Evan Lau, 2021. "The effects of conventional and unconventional monetary policy on exchange rate volatility," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1997425-199, January.

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    More about this item

    Keywords

    Dynamic stock-bond market correlations; Portfolio rebalancing and signalling channels; Quantile regression;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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