Journal of Finance 2026

The Real Channel for Nominal Bond‐Stock Puzzles

Mikhail Chernov¹; Lars A. Lochstoer^2,3,4; Dongho Song^2,5

¹ Correspondence : Mikhail Chernov, UCLA Anderson School of Management, 110 Westwood Plaza, Los Angeles, CA 90095-1481; e-mail: [email protected] · ² Johns Hopkins University · ³ Johns Hopkins Medicine · ⁴ Johns Hopkins University Applied Physics Laboratory · ⁵ University of Hong Kong

Abstract

We document that the nature of aggregate consumption dynamics changes when the bond‐stock correlation switches sign. We identify three regimes in a real‐time, sequential learning framework: two highly persistent regimes where permanent or transitory consumption shocks are more dominant, and a largely transitory disaster regime. We study the implications for asset prices. The transition from the second to the first regime in the late 1990s makes the correlation between equities and real bonds switch from positive to negative as in the data, providing an explanation from the perspective of real consumption dynamics. The findings extend to the international setting.

DOI

10.1111/jofi.70092

Language

en

Sources

crossref openalex

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