Equity/bond yield correlation and the FED model: evidence of switching behaviour from the G7 markets

  title={Equity/bond yield correlation and the FED model: evidence of switching behaviour from the G7 markets},
  author={Andreas Humpe and David G. McMillan},
  journal={Journal of Asset Management},
This paper considers how the strength and nature of the relation between the equity and bond yield varies with the level of the real bond yield. We demonstrate that at low levels of the real bond yield, the correlation between the equity and bond yields turns negative. This arises as the lower bond yield implies heightened macroeconomic risk (e.g. deflation and economic stagnation) and causes equity and bond prices to move in opposite directions. The FED model relies on a positive relation for… 
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