{"title":"On risk factors of the stock–bond correlation","authors":"Marcello Pericoli","doi":"10.1111/infi.12369","DOIUrl":null,"url":null,"abstract":"<p>The correlation between stock and bond returns, which went from positive in the 1980–1990s to negative in the 2000–2010s, is analysed with a model that simultaneously determines the price of stocks and bonds as dependent on the real interest rate, economic growth and inflation. The analysis finds that the structural reversal of the correlation in the United States and Germany largely depends on the dynamics of inflation, which has gone from counter-cyclical to pro-cyclical. In turn, inflation is likely to be pro-cyclical when it is low or negative and propelled by demand rather than supply shocks. A negative correlation implies that bonds can hedge the risk of stocks when the economy is in poor condition, thus increasing the demand for bonds. However, central-bank purchases of long-term bonds have increased the correlation and made portfolio immunization more difficult for investors.</p>","PeriodicalId":1,"journal":{"name":"Accounts of Chemical Research","volume":null,"pages":null},"PeriodicalIF":16.4000,"publicationDate":"2020-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/infi.12369","citationCount":"55","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Accounts of Chemical Research","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/infi.12369","RegionNum":1,"RegionCategory":"化学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"CHEMISTRY, MULTIDISCIPLINARY","Score":null,"Total":0}
引用次数: 55
Abstract
The correlation between stock and bond returns, which went from positive in the 1980–1990s to negative in the 2000–2010s, is analysed with a model that simultaneously determines the price of stocks and bonds as dependent on the real interest rate, economic growth and inflation. The analysis finds that the structural reversal of the correlation in the United States and Germany largely depends on the dynamics of inflation, which has gone from counter-cyclical to pro-cyclical. In turn, inflation is likely to be pro-cyclical when it is low or negative and propelled by demand rather than supply shocks. A negative correlation implies that bonds can hedge the risk of stocks when the economy is in poor condition, thus increasing the demand for bonds. However, central-bank purchases of long-term bonds have increased the correlation and made portfolio immunization more difficult for investors.
期刊介绍：
Accounts of Chemical Research presents short, concise and critical articles offering easy-to-read overviews of basic research and applications in all areas of chemistry and biochemistry. These short reviews focus on research from the author’s own laboratory and are designed to teach the reader about a research project. In addition, Accounts of Chemical Research publishes commentaries that give an informed opinion on a current research problem. Special Issues online are devoted to a single topic of unusual activity and significance.
Accounts of Chemical Research replaces the traditional article abstract with an article "Conspectus." These entries synopsize the research affording the reader a closer look at the content and significance of an article. Through this provision of a more detailed description of the article contents, the Conspectus enhances the article's discoverability by search engines and the exposure for the research.
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