Predicting stock‐bond correlations
Emerald Group Publishing Limited
Accounting research, Portfolio investment, Shares, Bonds, Modelling, Predictive validity, USA
Few studies have been conducted to explain the variation in stock-bond correlations. However, to construct efficient portfolios in a mean-variance framework, investors must make accurate projections of future correlations. The past variability in stock-bond correlations notwithstanding, practitioners usually project future correlations by extrapolating past data. The purpose of this paper is to develop a regression model that will generate projections of future correlations that are more accurate than what would be determined from naively extrapolating the co-deviations of the past.
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Cheng, J. & Ryan, R. (2002) Predicting stock‐bond correlations. Managerial Finance, 28(4), 12–18. doi: 10.1108/03074350210767799