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Macroeconomic News and Stock–Bond Comovement

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  • Gregory R Duffee

Abstract

Covariances between aggregate stock returns and changes in bond yields change sign over time. Existing theories emphasize either time-varying properties of expected inflation or time-varying properties of real yields. Using revisions in survey forecasts as proxies for macroeconomic news, neither approach succeeds empirically. Inflation-centric models require much more news about expected future inflation than we observe from surveys. Real-centric models posit signs of covariances among macroeconomic news, changes in yields, and stock returns that do not match those in the data. In a nutshell, macroeconomic news appears to drive a substantial part of stock–bond comovement, but not in ways consistent with our theories.

Suggested Citation

  • Gregory R Duffee, 2023. "Macroeconomic News and Stock–Bond Comovement," Review of Finance, European Finance Association, vol. 27(5), pages 1859-1882.
    • Handle: RePEc:oup:revfin:v:27:y:2023:i:5:p:1859-1882.
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    More about this item

    Keywords

    Stock returns; bond yields; stock–bond covariance; determinants of interest rates;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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