Co-Integration of Equity and Bond Returns
Faculty Sponsor(s)
Jeffrey A. Summers
Location
Jereld R. Nicholson Library
Subject Area
Economics
Description
Since the early 1970s, equity returns and 10-year Treasury bond returns have exhibited similar time series behavior. This study examines the relationship between these assets by testing for co-integration between equity returns, treasury returns, and corporate leverage as a measure of risk. The study finds that equity returns, treasury returns, and corporate leverage are not co-integrated and, thus, a long run equilibrium relationship between the asset returns and risk does not exist. Results indicate that treasury returns do not help forecast equity returns over the long run.
Recommended Citation
Tarhuni, Nizar J., "Co-Integration of Equity and Bond Returns" (2014). Linfield University Student Symposium: A Celebration of Scholarship and Creative Achievement. Event. Submission 52.
https://digitalcommons.linfield.edu/symposium/2014/all/52
Co-Integration of Equity and Bond Returns
Jereld R. Nicholson Library
Since the early 1970s, equity returns and 10-year Treasury bond returns have exhibited similar time series behavior. This study examines the relationship between these assets by testing for co-integration between equity returns, treasury returns, and corporate leverage as a measure of risk. The study finds that equity returns, treasury returns, and corporate leverage are not co-integrated and, thus, a long run equilibrium relationship between the asset returns and risk does not exist. Results indicate that treasury returns do not help forecast equity returns over the long run.
