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Bond Market volatility compared with stock market volatility: Evidence from the UK

Author

Listed:
  • R Johnson

    (Senior Vice President, Association for Investment Management and Research)

  • P Young

    (Vice President in the Curriculum and Examinations department of the Association for Investment Management and Research)

Abstract

The present study examines bond market volatility and stock market volatility in the UK. Because of the significant impact that bond market volatility has been shown to have on yield spreads and security values, it is important for investors in the global marketplace to be informed of the volatility patterns in these markets as well as the relative volatility of the bond market to the stock market. While previous researchers have found that volatility in the US bond market is increasing relative to stock market volatility, we find that the same cannot be said for the UK markets. In addition, the lack of a trend in both the ratio of bond-stock standard deviations and in correlations between stocks and bonds indicates that the effectiveness of bonds as diversification vehicles in the UK has not declined over time as it has in the US. This finding has implications for portfolio asset allocation decisions for global investors. The results of this study indicate that it is dangerous to assume that trends observed in the US market are also present in other developed markets.

Suggested Citation

  • R Johnson & P Young, 2002. "Bond Market volatility compared with stock market volatility: Evidence from the UK," Journal of Asset Management, Palgrave Macmillan, vol. 3(2), pages 101-111, September.
    • Handle: RePEc:pal:assmgt:v:3:y:2002:i:2:d:10.1057_palgrave.jam.2240069
    DOI: 10.1057/palgrave.jam.2240069
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    Citations

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    Cited by:

    1. Philip J Young & Thomas H Payne & Robert R Johnson, 2007. "Time-varying risk and return characteristics of US and European bond markets: Implications for efficient portfolio allocation," Journal of Asset Management, Palgrave Macmillan, vol. 8(5), pages 337-350, December.
    2. Steeley, James M. & Matyushkin, Alexander, 2015. "The effects of quantitative easing on the volatility of the gilt-edged market," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 113-128.
    3. Benlagha, Noureddine & Chargui, Sana, 2017. "Range-based and GARCH volatility estimation: Evidence from the French asset market," Global Finance Journal, Elsevier, vol. 32(C), pages 149-165.
    4. Smith, Kenneth L. & Swanson, Peggy E., 2008. "The dynamics among G7 government bond and equity markets and the implications for international capital market diversification," Research in International Business and Finance, Elsevier, vol. 22(2), pages 222-245, June.

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