The Joint Dynamics of Stock and Bond Risk-Returns in Japan
Changmin Lee and Hyoung-Goo Kang
We examine the joint dynamics of stocks and bonds in the Japanese
market by computing the prices of risks and their relationship in stock
and bond factors. We deconstruct market factors into industry factors and
incorporate bond factors such as the level, slope, and curvature of yield curves.
This paper contributes to the literature by identifying the risk-return relationship in
Japanese financial market and explaining the cross-sectional variations
of stock returns in consideration of the bond market, and illustrating the importance
of macro information in stock returns. Our approach and results provide practical
implications to hedge fund managers,
mutual fund managers, and basket traders.
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