Asset market linkages: Evidence from financial, commodity and real estate assets |
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Authors: | Kam Fong Chan Robert Brooks |
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Affiliation: | a Finance Cluster, UQ Business School, The University of Queensland, Australia b Accounting and Finance Discipline, UWA Business School, The University of Western Australia, Australia c Department of Econometrics and Business Statistics, Monash University, Australia |
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Abstract: | We use a general Markov switching model to examine the relationships between returns over three different asset classes: financial assets (US stocks and Treasury bonds), commodities (oil and gold) and real estate assets (US Case-Shiller index). We confirm the existence of two distinct regimes: a “tranquil” regime with periods of economic expansion and a “crisis” regime with periods of economic decline. The tranquil regime is characterized by lower volatility and significantly positive stock returns. During these periods, there is also evidence of a flight from quality - from gold to stocks. By contrast, the crisis regime is characterized by higher volatility and sharply negative stock returns, along with evidence of contagion between stocks, oil and real estate. Furthermore, during these periods, there is strong evidence of a flight to quality - from stocks to Treasury bonds. |
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Keywords: | C13 C32 G11 |
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