Stock and sovereign returns linkages: time-varying causality and extreme-quantile determinants

• Main Author: Afonso, António
• Publication Date: 2025
• Other Authors: Alves, José, Grabowski, Wojciech, Monteiro, Sofia
• Format: Article
• Language: eng
• Source: Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
• Download full: http://hdl.handle.net/10400.5/98513
• topic: Stock returns; Sovereign bond returns; Stock-bond relationship; Crossquantilogram; Volatility transmission; US; Germany; Monetary policy; Shocks; Fiscal stance

We employ a cross-quantilogram approach to assess relationships between quantiles of stock returns and sovereign yields, in the U.S. and Germany, in the period 1990-2024. Specifically, we focus on the lowest 5% quantile of stock returns and the highest 5% quantile of bond returns, providing insights into tail dependencies, crucial during market downturns and periods of heightened volatility. We also measure causality in volatilities extending well-known approaches analyzing volatility transmission. We find significant cross-market relationships between U.S. and German stock and bond markets, influenced by economic crises, macroeconomic dynamics, and monetary policy interventions, and financial stress play a crucial role.