Abstract
| Original language | English |
|---|---|
| Article number | 105683 |
| Journal | Journal of Banking & Finance |
| Volume | 109 |
| Number of pages | 25 |
| ISSN | 0378-4266 |
| DOIs | |
| Publication status | Published - Dec 2019 |
Keywords
- Demographics
- Financial yields
- OLG
- Inflation risk premium
Cite this
}
Stock vs. Bond Yields and Demographic Fluctuations. / Gozluklu, Arie; Morin, Annaïg .
In: Journal of Banking & Finance, Vol. 109, 105683, 12.2019.Research output: Contribution to journal › Journal article › Research › peer-review
TY - JOUR
T1 - Stock vs. Bond Yields and Demographic Fluctuations
AU - Gozluklu, Arie
AU - Morin, Annaïg
PY - 2019/12
Y1 - 2019/12
N2 - This paper analyzes the strong comovement between real stock and nominal bond yields at generational frequencies. Using a stochastic overlapping generations model with cash-in-advance constraints, we show that the simulated life-cycle patterns in savings behavior make both real stock and nominal bond yields comove with the changing population age structure. These persistent comovements account for the equilibrium relation between stock and bond markets. A stochastic Fisher decomposition of nominal bond yields reveals that, while having a moderate effect on both the inflation risk premium and expected inflation, demographic changes affect nominal yields mainly through real bond yields. Using both U.S. data and a cross-country panel, we find empirical support for these theoretical predictions. Finally, we show that the strength of the demographic effect on real yields explains cross-country differences in the comovement between stock and bond markets, while alternative demographic channels fail to explain such cross-country heterogeneity.
AB - This paper analyzes the strong comovement between real stock and nominal bond yields at generational frequencies. Using a stochastic overlapping generations model with cash-in-advance constraints, we show that the simulated life-cycle patterns in savings behavior make both real stock and nominal bond yields comove with the changing population age structure. These persistent comovements account for the equilibrium relation between stock and bond markets. A stochastic Fisher decomposition of nominal bond yields reveals that, while having a moderate effect on both the inflation risk premium and expected inflation, demographic changes affect nominal yields mainly through real bond yields. Using both U.S. data and a cross-country panel, we find empirical support for these theoretical predictions. Finally, we show that the strength of the demographic effect on real yields explains cross-country differences in the comovement between stock and bond markets, while alternative demographic channels fail to explain such cross-country heterogeneity.
KW - Demographics
KW - Financial yields
KW - OLG
KW - Inflation risk premium
KW - Demographics
KW - Financial yields
KW - OLG
KW - Inflation risk premium
UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954921393017&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes
U2 - 10.1016/j.jbankfin.2019.105683
DO - 10.1016/j.jbankfin.2019.105683
M3 - Journal article
VL - 109
JO - Journal of Banking & Finance
JF - Journal of Banking & Finance
SN - 0378-4266
M1 - 105683
ER -