Spillover Impact of the US Unconventional Monetary Policy and Uncertainties on Stock-Bond Correlations

  • Abobaker AL.AL Hadood University of Zawia Department of Banking and Finance, Libya
  • Korhan K. Gokmenoglu Eastern Mediterranean University, Department of Banking and Finance, Turkey

Abstract

This paper investigates the spillover impact of US unconventional monetary policy and uncertainty factors on the time-varying co-movements between the US stock market and 14 advanced countries’ bond markets, as based on monthly data from January 2002, to October 2015, and utilising the conditional nonlinear quantile regression approach. The empirical results reveal that US unconventional monetary policy has an asymmetric positive effect on stock–bond market co-movements, with a nonlinear effect in France and Denmark and a strong effect in the UK and Finland. Further, US bond market uncertainty has heterogeneous effects on stock–bond market co-movements, with a nonlinear effect in France and Denmark and a strong effect in Finland and Sweden. In addition, default risk spread positively influences stock–bond market co-movements across most countries for all quantiles. In contrast, stock–bond market co-movements negatively and symmetrically respond to the US stock market uncertainty in most countries. Finally, stock–bond co-movements exhibit mixed responses to US economic policy uncertainty across countries. Our results have valuable implications for international investors who allocate capital across developed countries’ stock and bond markets. Our findings provide important information for financial communities with regard to diversification and hedging. 

Keywords: Cross-country cross-asset correlations, Unconventional monetary policy, Uncertainties, Quantile regression. 

JEL: G15, E52, C22.

How to Cite
Hadood A.A., & Gokmenoglu K. (2021). Spillover Impact of the US Unconventional Monetary Policy and Uncertainties on Stock-Bond Correlations. Panoeconomicus, Advance online publication, 1-42. doi:10.2298/PAN180917017H
Section
Original scientific paper