A Study of Relationship between Stock Market and Bond Market in the Indian Context

Abstract

Purpose: The paper revisits the correlation between the stock and bond market. Theoretically, these two asset classes should have a negative correlation. However, there are times when the negative correlation does not hold, and the paper attempts to identify the macro/micro factors leading to this anomaly. Methodology: The study would use secondary data from various websites (SEBI, NSE, BSE, FIMMDA) for the past two decades and employ various statistical tests - such as Pearson’s Correlation, Spearman’s Correlation and Regression Analysis to ascertain the extent of correlation between equities market and bond market in India. Findings: The paper would validate the negative correlation and test the relationship during times of financial crisis - like the 2008 global melt-down and the ongoing COVID-19 pandemic. Implications: The study would help develop a better understanding of equities and bond markets’ performance in different economic conditions - especially during black swan events like the present global pandemic. Originality: The Study would also focus on events/situations when the traditionally accepted relationship between equity market and bond market transforms.