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Munawar Sayyad, Pat Obi and Kaushik Bhattacharjee
''International equity and bond market dynamics an asymmetric error correction study of united states, india and brazil''
( 2022, Vol. 0 No.0 )
Using the recently developed nonlinear autoregressive distributed lag (NARDL) model, this study examines the dynamic linkages between bond and equity markets over an extended period that encompasses the time from March 2016 to November 2020. Financial market variables were obtained for U.S., India, and Brazil, three large economies at different stages of economic development. The target variable is the slope of the yield curve, measured as the yield difference between 10-year and 3-month government bonds. Equity market variables are stock returns and implied volatility. A pre-post examination of the slope shows that the distributional properties of the variables changed markedly over the sample period. However, empirical results confirm cointegration but with significant nonlinearities. Policy recommendations on targeted fiscal intervention and asset allocation are offered.
Keywords: Yield curve, implied volatility, NARDL, Asymmetric cointegration, Causality
JEL: G1 - General Financial Markets
F3 - International Finance: General
Manuscript Received : Sep 28 2021 Manuscript Accepted : Feb 20 2022

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