Flavin, Thomas J.Lagoa-Varela, Dolores2016-12-192016-12-192016-02http://hdl.handle.net/2183/17776Flavin, J. f. , Lagoa-Varela, D. (2016). Do long-term bonds hedge equity risk? Evidence from Spain[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.engStock-bond relationshipVolatility regimesSpanish financial marketsSpanish bonds retunsRetuns on equityMarkov-switching vector autoregression modelMercado financiero españolVolatilidadBonos del EstadoModelo de autorregresión vectorial de conmutación de MarkovBonos a largo plazoworking paperopen access