Nicolau, Mihaela (2010): Financial Markets Interactions between Economic Theory and Practice. Published in: The Annals of Dunărea de Jos University Fascicle I. Economics and Applied Informatics , Vol. 16, No. 2 (30. November 2010): pp. 27-36.
This is the latest version of this item.
Download (1MB) | Preview
During the last decades many financial analysts, either theorists or practitioners, have dedicated their studies to the interactions between different financial sectors. The results of these researches confirm that commodities, bonds and stock markets are closely related, therefore a thorough analysis of one should includes considerations of the other two. The aim of this article is to demonstrate that, even if from the theoretical point of view financial markets present typical and strong correlations between them, under economic turmoil the correlations change their signs. Both elementary rules of economic theory and examples with real time series are used in the demonstration. The results of our research emphasize that a simple theoretical analysis of financial markets’ behaviour through inflation and interest rates cannot define the real interactions of the markets and more robust research approaches are required.
|Item Type:||MPRA Paper|
|Original Title:||Financial Markets Interactions between Economic Theory and Practice|
|Keywords:||financial markets, correlation coefficient, inflation, interest rates, commodities, bonds, stocks, oil price|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E39 - Other
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
G - Financial Economics > G1 - General Financial Markets > G10 - General
|Depositing User:||Mihaela Nicolau|
|Date Deposited:||15. Feb 2012 15:28|
|Last Modified:||14. Feb 2013 09:58|
Akoum I., Kiviaho J., Nikkinen J. and Omran M. (2010), Comovement of oil and stock prices in the GCC Region: A wavelet analysis, Manuscript.
Andersen T.G., Bollerslev T. and Diebold F. X.a dn Vega C. (2007), Real-time price discovery in stock, bond and foreign exchange markets, Journal of International Economics 73, p. 251-277.
Andritzky J.R., Bannister G.J. and Tamirisa N.T. (2007), The impact of macroeconomic announcements on emerging market bonds", Emerging Markets Review 8, p. 20-37.
Awokuse T.O. and Yang J. (2003), The informational role of commodity prices in formulating monetary policy: a reexamination, Economics Letters 79(2), p. 219-224.
Bachelier I. (1900), Theory of speculation, in P. Cootner (ed.), The random character of stock market prices, Massachusetts Institute of Technology Press, Cambridge, Ma., 1964, Reprint.
Baffes J. (2007), Oil spills on other commodities, Resources Policy 32(3), p. 126-134.
Barr D.P. and Campbell J.Y. (1997), Inflation, real interest rates, and the bond market: A study of UK nominal and index-linked government bond prices, Journal of Monetary Economics 39, p. 361-383.
Barsky R.B. and Ikilian, L. (2004), Oil and the macroeconomy since the 1970s, Journal of Economic Perspectives 18(4), p. 115-134.
Boyd J.H., Jagannathan R. and Hu J. (2005), The stock market's reaction to unemployment news: Why bad news is usually good for stocks, Journal of Finance 60, p. 649-672.
Bredin D., Hyde S. and Reilly G.O. (2010), Monetary policy surprises and international bond markets, Journal of International Money and Finance (doi:10.1016/j.jimon_n.2010.02.005)
Browne F. and Cronin D. (2010), Commodity prices, money and inflation, Journal of Economics and Business, (doi:10.1016/j.jeconbus.2010.02.003).
Chorafas D.N. (2005), The management of bond investments and trading of debt, Elsevier Butterworth-Heinemann, Oxford.
Connolly R., Stivers C. and Sun L. (2005), Stock market uncertainty and the stock-bond return relation", Journal of Financial and Quantitative Analysis 40, pp. 161-194.
Connolly R., Stivers C. and Sun L. (2007), Commonality in the time variation of stock-bond and stock-stock return co-movements, Journal of Financial Markets 10, pp. 192-218.
Cowles A. (1933), Can stock market forecasters forecast?", Econometrica I, p. 309-324.
D'Addona S. and Kind A.H. (2006), International stock-bond correlations in a simple affine asset pricing model, Journal of Banking and Finance 30, p. 2747-2765.
Dalkir M. (2009), Revising stock market index correlations, Finance Research Letters 6(1), p. 23-33.
Fama F. (1970), Efficient capital markets: A review of theory and empirical work, Journal of Finance 25, p. 383-417.
Gayed M.E.S. (1990), Intermarket analysis and investing: integrating economic, fundamental and technical trends, New York Institute of Finance, New York.
Hamilton J. (2000), What is an oil shock?, NBR Working Paper 7755 Cambridge, MA: National Bureau of Economic Research.
Jones C.M. and Kaul G. (1996), Oil and the stock markets, Journal of Finance 51, p. 463-491.
Kim S., Moshirian F. and Wu E. (2006), Evolution of international stock and bond market integration: Influence of the European Monetary Union, Journal of Banking and Finance 30, p. 1507-1534.
Kim S.J. and Nguyen D.Q.T. (2008), The reaction of the Australian financial markets to the interest rate news from the Reserve Bank of Australia and the U.S. Fed, Research in International Business of Finance (22), p. 378-395.
Lim E., Gallo J. and Swanson P. (1998), The relationship between international bond markets and international stock markets, International Review of Financial Analysis 7(2), p. 181-190.
Maslov S. and Roehner B.M. (2004), The conundrum of stock versus bond prices, Phisica A 335, p. 164-182.
Moosa I.A. (1998), Are commodity prices a leading indicator of inflation?, Journal of Policy Modeling 20(2), p. 201-212.
Mork K.A. (1989), Oil and the macroeconomy when prices go up and down: An extension of Hamilton's results, Journal of Political Economy 91, p. 740-744.
Murphy J.J. (1991), Intermarket technical analysis: trading strategies for the global stock, bond, commodity, and currency markets, John Wiley and Sons, Inc., New York.
Nimark K. (2008), Monetary policy with signal extraction from the bond market, Journal of Monetary Economics (55), p. 1389-1400.
Pecchenino R.A. (1992), Commodity prices and the CPI: Cointegration, information, and signal extraction, International Journal of Forecasting 7(4), pp. 493-500.
Samuelson P. (1965), Proof that properly anticipated prices fluctuate randomly, Industrial Management Review 6, p. 41-49.
Savva C.S. (2009), International stock markets interactions and conditional correlations, Journal of International Financial Markets, Institutions and Money 19(4), p. 645-661.
Shiller R. and Beltratti A. (1992), Stock prices and bond yields: Can their co-movements be explained in terms of present value models?, Journal of Monetary Economics 30, p. 25-46.
Sieczka P. and Holyst J.A. (2009), Correlations in commodity markets, Physica A (388), p. 1621-1630.
Solnik B., Boucrelle C. and Le Fur Y. (1996), International market correlation and volatility, Financial Analysts Journal 52(5), p. 17-34.
Yang J., Zhou Y. and Wang Z. (2009), The stock-bond correlation and economic conditions: One and a half centuries of evidence", Journal of Banking and Finance 33, p. 670-680.
Available Versions of this Item
Financial Markets Interactions between Economic Theory and Practice. (deposited 11. Dec 2010 00:26)
Financial Markets Interactions between Economic Theory and Practice. (deposited 21. Apr 2011 21:07)
- Financial Markets Interactions between Economic Theory and Practice. (deposited 15. Feb 2012 15:28) [Currently Displayed]
- Financial Markets Interactions between Economic Theory and Practice. (deposited 21. Apr 2011 21:07)