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Impact of Market Uncertainty on Stock-Bond Return Relation
Rulíšek, Filip ; Čech, František (advisor) ; Teleu, Saida (referee)
In this thesis, we investigate the relationship between stock and bond returns in the US market from January 2018 to May 2023, with a specific focus on the impact of market uncertainty on this relation. Employing the rolling window cor- relation method, we examine the dynamic correlation between these two assets, using the S&P 500 Index and the US 10-Year Treasury Price Index. The results show, on average, a negative correlation on both monthly and quarterly basis. On a monthly basis we also observed highly fluctuating patterns. Additionally, the findings presented herein demonstrate that both the level and changes in stock market uncertainty, measured by the CBOE Volatility Index, negatively affect the relationship between stock and bond returns. On average, during times of increas- ing market uncertainty, investors tend to shift their funds from risky stocks toward safer bonds, while periods of low market uncertainty are usually characterized by the opposite trend. We carried out the same analysis for 11 stock market sec- tors separately. Interestingly, this analysis revealed that the relationship between the returns of these sectors and government bond returns varies. While the ma- jority of sectors exhibit the same negative correlation as the overall market, few sectors, such as Utilities and...
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