Regime Switching in Volatilities and Correlation between Stock and Bond markets

  title={Regime Switching in Volatilities and Correlation between Stock and Bond markets},
  author={Ruolan Chen},
This paper studies the correlation and volatilities of the bond and stock markets in a regimeswitching bivariate GARCH model. We extend the univariate Markov-Switching GARCH of Haas, Mittnik and Paolella (2004) into a bivariate Markov-switching GARCH model with Conditional Constant Correlation (CCC) speci…cation within each regime, though the correlation may change across regimes. Our model allows separate state variable governing each of the three processes: bond volatility, stock volatility… CONTINUE READING


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