Flights and CAViaR - Financial market stability and the stock-bond return relation

 |  Login

Show simple item record

dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.author Viitanen, Tero
dc.date.accessioned 2011-11-14T11:24:12Z
dc.date.available 2011-11-14T11:24:12Z
dc.date.issued 2011
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/778
dc.description.abstract PURPOSE OF THE STUDY This paper investigates the intranational dynamic relationship between daily stock and government bond returns of selected countries between January 1, 1999 and December 31, 2010 to assess financial market stability in different countries and market conditions. The underlying hypothesis of this paper is that the financial markets of the world’s most advanced economies exhibit financial market stability even under extreme market conditions and potentially systemic events. The econometric framework employed to assess whether a country exhibits financial market stability or not includes modeling the time-varying conditional intranational stock-bond correlations, testing for the intranational flights between stocks and bonds, and modeling the conditional autoregressive value at risk (CAViaR) of equally weighted intranational stock-bond portfolios. These methodologies represent one of the most prominent and current tools in the field of financial econometrics and are commonly used by researchers and practitioners all around the world. Importantly, they all have the potential to provide valuable information for investors, policy makers and regulatory authorities about the cross-sectional dimension of systemic risk for assessing financial market stability under extreme market conditions and potentially systemic events. DATA The data employed in this paper consists of daily observations of national local currency denominated stock and government bond market total return indices of Australia, Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, Switzerland, the United Kingdom (UK), and the United States (US) from January 1, 1999 to December 31, 2010 (3131 observations). The stock market indices are Datastream-constructed value-weighted total market indices representing the total return on a well-diversified national equity portfolio covering a minimum of 75% - 80% of the total market capitalization of each market. The bond market indices are Datastream-constructed 10-year constant maturity total return indices consisting only of the most liquid government bonds following the European Federation of Financial Analysts Societies (EFFAS) methodology. RESULTS The empirical results show that the world’s most advanced economies, except Italy and Spain, exhibit financial market stability under extreme market conditions and potentially systemic events as assessed by their intranational stock-bond return relations. In the financially stable countries under extreme market conditions and potentially systemic events, the conditional intranational stock-bond correlations tend to stay below or close to zero, the intranational flights between stocks and bonds tend to rather reduce than aggravate the propagation of shocks, and the CAViaR of equally weighted intranational stock-bond portfolios resemble each other to a high degree without showing hardly any excessive divergent spillover effects. In Italy and Spain, the reverse applies. Overall, these results in favor of prevailing financial market stability even under extreme market conditions and potentially systemic events are relatively well in line with the rare empirical literature on financial market stability with the emphasis on cross-asset linkages in developed markets. en
dc.format.extent 124
dc.format.mimetype application/pdf en
dc.language.iso en en
dc.title Flights and CAViaR - Financial market stability and the stock-bond return relation en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Economics en
dc.contributor.department Department of Finance en
dc.contributor.department Rahoituksen laitos fi
dc.subject.keyword stocks
dc.subject.keyword government bonds
dc.subject.keyword financial market stability
dc.subject.keyword conditional correlation
dc.subject.keyword MGARCH
dc.subject.keyword CCC
dc.subject.keyword DCC
dc.subject.keyword ADCC
dc.subject.keyword flights
dc.subject.keyword contagion
dc.subject.keyword market risk
dc.subject.keyword VaR
dc.subject.keyword CAViaR
dc.identifier.urn URN:NBN:fi:aalto-201111181690
dc.type.dcmitype text en
dc.programme.major Finance en
dc.programme.major Rahoitus fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon rahoitusmarkkinat
dc.subject.helecon financing markets
dc.subject.helecon osakkeet
dc.subject.helecon shares
dc.subject.helecon vakaus
dc.subject.helecon stability
dc.ethesisid 12646
dc.date.dateaccepted 2011-11-01
dc.location P1 I


Files in this item

This item appears in the following Collection(s)

Show simple item record

Search archive


Advanced Search

article-iconSubmit a publication

Browse

My Account