Deciphering Sector-Specific Index Stock-Bond Relationships : The Role of Market Sentiment
This study deciphers sector-specific stock-bond relationships by untangling investor-induced contagion from 'flight-to-quality' (FTQ) and 'flight-from-quality' (FFQ). Integral to the study, is investor sentiment during high and low-volatility markets. By combining EGARCH with the DCC model on US sector indices and 10-year debt for six major bond markets, we report a wealth effect during the Dotcom Crash and 2008 Global Financial Crisis. Significantly, FFQ is predominant during the European debt crisis - especially involving Spanish and Italian debt. Further, we discover a heterogeneous investor sentiment effect that could cause a transitional shift in contagion during high-volatility periods and a FTQ (FFQ) in stable markets, depending on the daily change in the VIX. These results demonstrate the complex role of the VIX not envisaged in previous studies and as such, has major implications for future academic debate, and more widely, policymakers and fund managers
Year of publication: |
2023
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Authors: | Santamaria, Daniel ; Gavriilidis, Konstantinos |
Publisher: |
[S.l.] : SSRN |
Saved in:
freely available
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