{"title":"Consumption Growth Persistence and the Stock–Bond Correlation","authors":"Christopher S. Jones, Sungjune Pyun","doi":"10.1017/s002210902400019x","DOIUrl":null,"url":null,"abstract":"<p>We consider a model in which the correlation between shocks to consumption and to expected future consumption growth is nonzero and varies over time. We validate this assumption empirically using the model’s implication that time variation in consumption growth persistence (CGP) drives the correlation between stock and bond returns. Our model implies that the stock–bond correlation is also related to the predictive relation between bond yields and future stock returns. Finally, we provide suggestive evidence that asset price fluctuations are the primary driver of changes in CGP.</p>","PeriodicalId":48380,"journal":{"name":"Journal of Financial and Quantitative Analysis","volume":null,"pages":null},"PeriodicalIF":3.9000,"publicationDate":"2024-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Financial and Quantitative Analysis","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1017/s002210902400019x","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"Economics, Econometrics and Finance","Score":null,"Total":0}
引用次数: 0
Abstract
We consider a model in which the correlation between shocks to consumption and to expected future consumption growth is nonzero and varies over time. We validate this assumption empirically using the model’s implication that time variation in consumption growth persistence (CGP) drives the correlation between stock and bond returns. Our model implies that the stock–bond correlation is also related to the predictive relation between bond yields and future stock returns. Finally, we provide suggestive evidence that asset price fluctuations are the primary driver of changes in CGP.
期刊介绍：
The Journal of Financial and Quantitative Analysis (JFQA) publishes theoretical and empirical research in financial economics. Topics include corporate finance, investments, capital and security markets, and quantitative methods of particular relevance to financial researchers. With a circulation of 3000 libraries, firms, and individuals in 70 nations, the JFQA serves an international community of sophisticated finance scholars—academics and practitioners alike. The JFQA prints less than 10% of the more than 600 unsolicited manuscripts submitted annually. An intensive blind review process and exacting editorial standards contribute to the JFQA’s reputation as a top finance journal.
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