Journal of Finance Vol. 48 No. 1 1993
What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns.
Abstract
This paper uses a vector autoregressive model to decompose excess stock and ten-year bond returns into changes in expectations of future stock dividends, inflation, short-term real interest rates, and excess stock and bond returns. In monthly postwa r U.S. data, stock and bond returns are driven largely by news about future excess stock returns and inflation, respectively. Real intere st rates have little impact on returns, although they do affect the short-term nominal interest rate and the slope of the term structure. These findings help to explain the low correlation between excess st ock and bond returns.
- Volume
- 48
- Issue
- 1
- Pages
- 3-37
- Sources
- bibtex:phds-export.bib