This paper decomposes US and Euro area excess stock and bond return innovations into news factors using the Campbell-Schiller methodology. The results indicate that stock return volatility is mostly due to volatility of future excess return news. Inflation news plays a minor role although it is...

Corporate bonds expose the investor to credit risk, which will be reflected in the credit spread. Based on the EMU Broad Market indices, this paper reports studies of the intertemporal stability of the covariance and correlation matrices of credit spread changes on weekly data. For a...