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Impact of financial market uncertainty and macroeconomic factors on stock–bond correlation in emerging markets

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  • Dimic, Nebojsa
  • Kiviaho, Jarno
  • Piljak, Vanja
  • Äijö, Janne

Abstract

This paper examines the impact of global financial market uncertainty and domestic macroeconomic factors on stock–bond correlation in emerging markets. In particular, by applying the wavelet analysis approach, we are able to examine stock–bond correlations over different time horizons in ten emerging markets. We find that stock–bond correlation patterns vary significantly between the time horizons. In particular, the correlation in short horizon changes the sign rapidly showing sustainable negative episodes while the correlation in long horizon stays positive most of the time. The most important factor influencing stock–bond correlation in short horizon is the monetary policy stance, while the factors with the greatest long-term impact are inflation and stock market uncertainty. Finally, global stock market uncertainty plays a more significant role than global bond market uncertainty in explaining stock–bond correlations in emerging markets.

Suggested Citation

  • Dimic, Nebojsa & Kiviaho, Jarno & Piljak, Vanja & Äijö, Janne, 2016. "Impact of financial market uncertainty and macroeconomic factors on stock–bond correlation in emerging markets," Research in International Business and Finance, Elsevier, vol. 36(C), pages 41-51.
    • Handle: RePEc:eee:riibaf:v:36:y:2016:i:c:p:41-51
    DOI: 10.1016/j.ribaf.2015.09.001
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    More about this item

    Keywords

    Stock–bond correlation; Emerging markets; Macroeconomic factors; Financial market uncertainty; Wavelet analysis;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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