ANALYZING TIME-FREQUENCY NEXUS BETWEEN STOCK RETURNS AND BOND YIELDS THROUGH WAVELETS: THE CASE OF TURKEY – PART I

Yıl 2020, Cilt: 12 Sayı: 23, 459 - 494, 31.07.2020

Remzi Gök Erhan Çankal

https://doi.org/10.14784/marufacd.782972

Öz

This paper reinvestigates the stock-bond nexus using 605 weekly observations of stock index prices and the 2-year benchmark rate of Turkey over a sample period covering April 1, 2005, and December 30, 2016. By conducting a novel approach, wavelet analysis, we aimed to offer a deeper understanding of the relationship considering the investor's heterogeneities on investment periods. The results show weekly positive averages for all stock index returns but negative average for bond yields over time. Wavelets variance analysis reveals that the higher scale the lower volatility, namely, the most of fluctuations in returns is explained by short-term, suggesting that short-term investors should react to every fluctuation in their asset returns. Similarly, the stock market is found to be more volatile than the bond market. As expected, test findings highlight significantly negative stock-bond linkage. Wavelet cross-correlation results show significantly both positive and negative bidirectional causal linkages over higher wavelet-scales.
Keywords: Wavelets, lead-lag, wavelet variance, correlation, and cross-correlation.

Anahtar Kelimeler

Wavelets, lead-lag, wavelet variance, correlation, cross-correlation

ANALYZING TIME-FREQUENCY NEXUS BETWEEN STOCK RETURNS AND BOND YIELDS THROUGH WAVELETS: THE CASE OF TURKEY – PART I

Öz

This paper reinvestigates the stock-bond nexus using 605 weekly observations of stock index prices and the 2-year benchmark rate of Turkey over a sample period covering April 1, 2005, and December 30, 2016. By conducting a novel approach, wavelet analysis, we aimed to offer a deeper understanding of the relationship considering the investor's heterogeneities on investment periods. The results show weekly positive averages for all stock index returns but negative average for bond yields over time. Wavelets variance analysis reveals that the higher scale the lower volatility, namely, the most of fluctuations in returns is explained by short-term, suggesting that short-term investors should react to every fluctuation in their asset returns. Similarly, the stock market is found to be more volatile than the bond market. As expected, test findings highlight significantly negative stock-bond linkage. Wavelet

Anahtar Kelimeler

Wavelets, lead-lag, wavelet variance, correlation, cross-correlation

Kaynakça

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