Covariances between aggregate stock returns and changes in bond yields change sign over time. Existing theories emphasize either time-varying properties of expected inflation or time-varying properties of real yields. Using revisions in survey forecasts as proxies for macroeconomic news, neither approach succeeds empirically. Inflation-centric models require much more news about expected future inflation than we observe from surveys. Real-centric models posit signs of covariances among macroeconomic news, changes in yields, and stock returns that do not match those in the data. In a nutshell, macroeconomic news appears to drive a substantial part of stock-bond comovement, but not in ways consistent with our theories.
CITATION STYLE
Duffee, G. R. (2023). Macroeconomic News and Stock-Bond Comovement. Review of Finance, 27(5), 1859–1882. https://doi.org/10.1093/rof/rfac066
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