Time-varying market integration and stock and bond return concordance in emerging markets |
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Authors: | Valentyn Panchenko Eliza Wu |
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Affiliation: | 1. School of Economics, University of New South Wales, Sydney, NSW 2052, Australia;2. School of Banking and Finance, University of New South Wales, Sydney, NSW 2052, Australia |
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Abstract: | We investigate the extent to which emerging stock market integration affects the joint behavior of stock and bond returns using a two-stage semi-parametric approach. Using a sample of 18 emerging markets, we find an unambiguous and robust link between emerging stock market integration and stock–bond return decoupling. We explain this with a decline in the segmentation risk premia in equities modeled by De Jong and De Roon [De Jong, F., De Roon, F.A., 2005. Time-varying market integration and expected returns in emerging markets. Journal of Financial Economics 78, 583–613] that leads to increased demand for stocks and reduced or unchanged demand for bonds. Our findings deliver new insights into the financial liberalization and stock–bond comovement literatures. |
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Keywords: | F36 G11 G15 |
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