Abstract:
PURPOSE : Portfolio construction and diversification is a prominent challenge for investors. It reflects market agents’ behavior and response to market conditions. This paper aims to investigate the stock-bond nexus in the case of two emerging and two mature markets, India, South Africa, the UK and the USA, using long-term historical monthly data.
DESIGN/METHODOLOGY/APPROACH : To address the issue at hand, copula quantile-on-quantile regression (C-QQR) is used to model the correlation structure. Although this technique is driven by copula-based quantile regression model, it retains more flexibility and delivers more robust and accurate estimates.
FINDINGS : Results suggest that there is substantial heterogeneity in the bond-stock returns correlation across the countries under study point to different investors’ behavior in the four markets examined. Additionally, the findings reported herein suggest that using C-QQR in portfolio management can enable the formation of tailored response strategies, adapted to the needs and preferences of investors and traders.
ORIGINALITY/VALUE : To the best of the authors’ knowledge, no previous study has addressed in a comparative setting the stock-bond nexus for the four countries used here using long-term historical data that cover the periods 1920:08-2017:02, 1910:01-2017:02, 1933:01-2017:02 and 1791:09-2017:02 for India, South Africa, the UK and the USA, respectively.
