The correlation between bond market and stock market returns in Europe using a DCC GARCH

Braun, Steve ; Reeff, Sven
(2017)

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Braun_22391200_2017_Annexe1.pdf
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Braun_22391200_2017.pdf
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Reeff_24121200_2017.pdf
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Reeff_24121200_2017_Annexe1.pdf
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Details

Supervisors
Gnabo, Jean-Yves
Faculty
Louvain School of Management
Degree label
Master [120] en sciences de gestion
Abstract
Our master thesis aims to understand the time varying relationship between bond market and stock market returns. By using the Stoxx Euro 600 as a benchmark for the European stock situation and the Bloomberg Barclays EuroAgg Total Return Index Value Unhedged as a benchmark for European obligations, we will analyse how the correlation varies over time using a DCC GARCH. In a second step, we will examine what macroeconomic factors have impacted the relationship and what economic variables have a significant effect on the predictive model. The analysis is conducted over a period of 17 years, namely from 1998 to 2015, and we have used weekly log-returns for both indices. Understanding what drives correlation is crucial for different domains in finance, such as risk management, portfolio management and corporate finance.