Smooth Transition Patterns in the Realized Stock- Bond Correlation

Identifier:  PC:4780

Handle: https://hdl.handle.net/20.500.11797/PC4780

Authors:  Christiansen, Charlotte; Aslanidis, Nektarios

Abstract:
Abstract: We analyze the realized stock-bond correlation. Gradual transitions between negative and positive stock-bond correlation is accommodated by the smooth transition regression (STR) model. The changes in regime are de ned by economic and financial transition variables. Both in sample and out-of- sample results document that STR models with multiple transition variables outperform STR models with a single transition variable. The most important transition variables are the short rate, the yield spread, and the VIX volatility index. Keywords: realized correlation; smooth transition regressions; stock-bond correlation; VIX index JEL Classifi cations: C22; G11; G12; G17