Asset market linkages: Evidence from financial, commodity and real estate assets

Kam Chan, Sirimon Treepongkaruna, Robert Brooks, Stephen Gray

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We use a general Markov switching model to examine the relationships between returns over three different asset classes: financial assets (US stocks and Treasury bonds), commodities (oil and gold) and real estate assets (US Case-Shiller index). We confirm the existence of two distinct regimes: a tranquil regime with periods of economic expansion and a crisis regime with periods of economic decline. The tranquil regime is characterized by lower volatility and significantly positive stock returns. During these periods, there is also evidence of a flight from quality - from gold to stocks. By contrast, the crisis regime is characterized by higher volatility and sharply negative stock returns, along with evidence of contagion between stocks, oil and real estate. Furthermore, during these periods, there is strong evidence of a flight to quality - from stocks to Treasury bonds.
Original languageEnglish
Pages (from-to)1415 - 1426
Number of pages12
JournalJournal of Banking and Finance
Volume35
Issue number6
DOIs
Publication statusPublished - 2011

Cite this

Chan, Kam ; Treepongkaruna, Sirimon ; Brooks, Robert ; Gray, Stephen. / Asset market linkages: Evidence from financial, commodity and real estate assets. In: Journal of Banking and Finance. 2011 ; Vol. 35, No. 6. pp. 1415 - 1426.
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Asset market linkages: Evidence from financial, commodity and real estate assets. / Chan, Kam; Treepongkaruna, Sirimon; Brooks, Robert; Gray, Stephen.

In: Journal of Banking and Finance, Vol. 35, No. 6, 2011, p. 1415 - 1426.

Research output: Contribution to journalArticleResearchpeer-review

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AB - We use a general Markov switching model to examine the relationships between returns over three different asset classes: financial assets (US stocks and Treasury bonds), commodities (oil and gold) and real estate assets (US Case-Shiller index). We confirm the existence of two distinct regimes: a tranquil regime with periods of economic expansion and a crisis regime with periods of economic decline. The tranquil regime is characterized by lower volatility and significantly positive stock returns. During these periods, there is also evidence of a flight from quality - from gold to stocks. By contrast, the crisis regime is characterized by higher volatility and sharply negative stock returns, along with evidence of contagion between stocks, oil and real estate. Furthermore, during these periods, there is strong evidence of a flight to quality - from stocks to Treasury bonds.

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