Quantile Dependence between the Stock, Bond and Foreign Exchange Markets - Evidence from the UK

Journal article


Hamid, R and Wu, W (2018). Quantile Dependence between the Stock, Bond and Foreign Exchange Markets - Evidence from the UK. Quarterly Review of Economics and Finance.
AuthorsHamid, R and Wu, W
Abstract

In the wake of Brexit, this paper aims to provide a measure for the quantile dependence amongst different financial assets – bond, stock, and currency – within the UK market and their cross–border linkages with the European equity market. We implement a nonparametric estimation method for both the tail and quantile dependence parameters on weekly data over the period 1989-2016 using copula. Our results suggest that the contagion effects between stock and currency markets are limited, even under extreme fluctuations. We also find a weak comovement between currency and bond markets, however, evidence of asymmetry is found in the dependence structure, possibly due to the ‘risk-reward’ scenario of international investors. Finally, our results indicate a weak dependence between stock returns and bond yields, possibly due to the low-yielding gilt and the thirst for income, pushing investors to diversify globally into other financial markets.

KeywordsQuantile Dependence; Copula; Nonparametric Estimation; Asymmetric Dependence; 14 Economics; 15 Commerce, Management, Tourism And Services; Finance
Year2018
JournalQuarterly Review of Economics and Finance
PublisherLondon South Bank University
Digital Object Identifier (DOI)doi:https://doi.org/10.1016/j.qref.2018.03.009
Publication dates
Print10 Apr 2018
Publication process dates
Deposited19 Mar 2018
Accepted18 Mar 2018
Accepted author manuscript
License
CC BY-NC-ND 4.0
Permalink -

https://openresearch.lsbu.ac.uk/item/86v5y

Accepted author manuscript

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