Extreme correlation of stock and bond futures: International Evidence

Chin Man Chui and Jian Yang
The Financial Review, Vol. 47 Issue 3, August 2012, pp. 565-587

This study explores time-varying extreme correlation of stock-bond futures markets in three major developed countries. In the U.S. and the UK, there is evidence of positive extreme stock-bond correlation when both futures markets are extremely bullish or markets are extremely bearish. In German, stock-bond futures extreme correlation is negative, suggesting the most diversification potentials of bond futures when German stock when German stock index futures market plunges. Macroeconomic News,The Business cycle and the stock market uncertainty all significantly median stock bond futures correlation. However, only the stock market uncertainty still significantly affects the extreme stock-bond futures correlation when the stock market is extremely bearish.