Interdependence between the stock market and the bond market in one country: evidence from the subprime crisis and the European debt crisis
Open Access
- 9 April 2017
- journal article
- research article
- Published by Springer Science and Business Media LLC in Financial Innovation
- Vol. 3 (1), 1-22
- https://doi.org/10.1186/s40854-017-0055-z
Abstract
Background: Once a global financial crisis breaks out, the interdependence between different financial markets suddenly increases and leads to a significant contagion. Methods: With 39 countries used as samples, this paper analyzes the interdependence between the stock market and the government bond market during the crisis periods. Results: It proves that the investor focuses more on the safety of their portfolio so there is neither a flight from quality nor a positive spillover during a crisis period. When one market is safer than the other market in the same country, a flight to quality occurs between the two markets; however, when the two markets in one country are both risky, negative spillover appears between these two markets. Conclusions: This means a flight to quality from the stock market to the short-term government bond will occur more frequently than will occur from the stock market to the long-term government bond markets. In addition, a flight to quality always emerges in developed markets, while negative spillovers take place in emerging markets and in the PIIGS countries (Portugal, Italy, Ireland, Greece, and Spain, referred to hereon as “PIIGS”) in the European Debt Crisis.Keywords
Funding Information
- China Postdoctoral Science Foundation (2014M550985)
This publication has 13 references indexed in Scilit:
- No contagion, only globalization and flight to qualityJournal of International Money and Finance, 2012
- Smooth transition patterns in the realized stock–bond correlationJournal of Empirical Finance, 2012
- Copula contagion index and its efficiencyApplied Financial Economics, 2012
- Asset market linkages: Evidence from financial, commodity and real estate assetsJournal of Banking & Finance, 2011
- Flights and contagion—An empirical analysis of stock–bond correlationsJournal of Financial Stability, 2009
- Collective Risk Management in a Flight to Quality EpisodeThe Journal of Finance, 2008
- Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond MarketThe Review of Financial Studies, 2008
- No Contagion, Only Interdependence: Measuring Stock Market ComovementsThe Journal of Finance, 2002
- DecouplingThe Journal of Portfolio Management, 2002
- The Financial Accelerator and the Flight to QualityThe Review of Economics and Statistics, 1996