Do long-term bonds hedge equity risk? Evidence from Spain
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Do long-term bonds hedge equity risk? Evidence from SpainData
2016-02Resumo
[Abstract:] We analyze the relationship between returns on equity and long-term government bonds in
the Spanish economy. In particular, we are interested in the stability of the relationship across
differing market conditions and if long-term bonds deliver diversification benefits during
periods of equity market turbulence. Employing a Markov-switching vector autoregression
model with three regimes, we find that Spanish bond returns become more positively
correlated with domestic equity returns during periods of financial distress. A sectoral
analysis reveals that two sectors – Financials and Oil & Gas – are responsible for this positive
comovement with the former being relatively more important.
Palabras chave
Stock-bond relationship
Volatility regimes
Spanish financial markets
Spanish bonds retuns
Retuns on equity
Markov-switching vector autoregression model
Mercado financiero español
Volatilidad
Bonos del Estado
Modelo de autorregresión vectorial de conmutación de Markov
Bonos a largo plazo
Volatility regimes
Spanish financial markets
Spanish bonds retuns
Retuns on equity
Markov-switching vector autoregression model
Mercado financiero español
Volatilidad
Bonos del Estado
Modelo de autorregresión vectorial de conmutación de Markov
Bonos a largo plazo
Descrición
Flavin, J. f. , Lagoa-Varela, D. (2016). Do long-term bonds hedge equity risk? Evidence from Spain