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What Wavelet-Based Quantiles Can Suggest about the Stocks-Bond Interaction in the Emerging East Asian Economies?

Author

Listed:
  • Jovan Njegic

    (Novi Sad Business School, Serbia)

  • Milica Stankovic

    (College of Applied Professional Studies, Vranje, Serbia)

  • Dejan Živkov

    (Novi Sad Business School, Serbia)

Abstract

This paper investigates bidirectional interdependence between 10Y bond yields and stock returns in the eight emerging East Asian economies. The method of choice is wavelet-based quantile approach, which can provide an answer about spillover effect in different market conditions and in different time horizons. We find that shock spillover effect is much more intense from the bond markets to the stock markets in all the selected economies, than vice-versa. Also, the nexus is dominantly positive in the more developed financial markets in both tranquil and crisis periods, particularly in the short and midterm horizons, which is an indication that capital reallocation takes place between these markets in a search for safer and more profitable investments. As for the less developed East Asian economies, we find negative quantile parameters in all quantiles and in all wavelet scales, which suggests that dividend discount model is a decisive factor that drives the stock-bond interdependence in all time horizons.

Suggested Citation

  • Jovan Njegic & Milica Stankovic & Dejan Živkov, 2019. "What Wavelet-Based Quantiles Can Suggest about the Stocks-Bond Interaction in the Emerging East Asian Economies?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(1), pages 95-119, February.
    • Handle: RePEc:fau:fauart:v:69:y:2019:i:1:p:95-119
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    More about this item

    Keywords

    10Y bond yields; stock returns; wavelet decomposition; quantile regression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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