Stock and bond market interactions with level and asymmetry dynamics: An out-of-sample application

P. C. de Goeij, W. Marquering

Research output: Contribution to journalArticleScientificpeer-review

11 Citations (Scopus)
290 Downloads (Pure)

Abstract

We model the dynamic interaction between stock and bond returns using a multivariate model with level effects and asymmetries in conditional volatility. We examine the out-of-sample performance using daily returns on the S&P 500 index and 10 year Treasury bond. We find evidence for significant (cross-) asymmetries in the conditional volatility and level e§ects in bond returns. The out-of-sample covariance matrix forecasts of the model imply that an investor is willing to pay between 129 and 820 basis points per year for using a dynamic trading strategy instead of a passive strategy.
Original languageEnglish
Pages (from-to)318-329
JournalJournal of Empirical Finance
Volume16
Issue number2
Publication statusPublished - 2009

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