Stock vs. Bond Yields, and Demographic Fluctuations

Arie Gozluklu, Annaïg Morin

Publikation: Working paperForskning


This paper analyzes the strong comovement between real stock and nominal
bond yields at generational (low) frequencies. Life-cycle patterns in savings behavior
in an overlapping generations model with cash-in-advance constraints explain this
persistent comovement between financial yields. We argue that the slow-evolving
time-series covariation due to changing population age structure accounts for the
equilibrium relation between stock and bond markets. As a result, by exploiting
the demographic information into distant future, the forecasting performance of
valuation models improves. Finally, using a cross-country panel, we document the
cross-sectional variation of the demographic effect and explain the cross-country
differences in comovement between stock and bond markets.
Udgivelses stedWarwick
UdgiverUniversity of Warwick
Antal sider59
StatusUdgivet - 2015