Tracking the relationship between euro area equities and sovereign bonds

• Autor(a) principal: da Cunha Cabral, I.
• Data de Publicação: 2019
• Outros Autores: Ribeiro, P. P., Nicolau, J.
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/19910
• topic: Asymmetry; Causality; Cross correlation; Equities; Euro area; Fragmentation; Multiscales; Sovereign bonds

This paper explores the relationship between stocks and sovereign bonds by means of the asymmetric detrended cross-correlation analysis (ADCCA). Drawing on data from 1999.01 to 2018.09 of the first wave of euro area countries, the full sample is divided into three subsets in accordance with economic and financial features. Some findings arise with striking implications for investors and policymakers. Firstly, empirical results show that cross-correlations differ from country to country, depending on the sub-period under analysis and on the time scale. Secondly, likewise within country estimates, cross-country linkages may point to fragmentation in the euro area with agents moving away from financial assets of lower-rated countries to invest in more robust economies in periods of turmoil. Thirdly, there is evidence of asymmetry since 'flight-to-quality' movements seem to be more relevant than 'flight-to-yield' episodes. Finally, while relationships were globally bidirectional until mid-2007, new causality patterns arose with the financial crisis.