The stock-bond nexus and investors’ behavior in mature and emerging markets : evidence from long-term historical data

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Authors

Selmi, Refk
Gupta, Rangan
Kollias, Christos
Papadamou, Stephanos

Journal Title

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Volume Title

Publisher

Emerald

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.

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Keywords

Copula quantile-on-quantile regression (C-QQR), Copula, Quantile regression, Stock-bond nexus

Sustainable Development Goals

Citation

Selmi, R., Gupta, R., Kollias, C. and Papadamou, S. (2021), "The stock-bond nexus and investors’ behavior in mature and emerging markets: Evidence from long-term historical data", Studies in Economics and Finance, Vol. 38 No. 3, pp. 562-582. https://doi.org/10.1108/SEF-08-2017-0224.