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The Good? The Bad? The Ugly? Which news drive (co)variation in Swiss and US bond and stock excess returns?

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  • Dr. Thomas Nitschka
Abstract
Based on a vector autoregressive model, this paper shows that time variation in monthly excess returns on Swiss government bonds and stocks is predominantly driven by news of inflation and dividends, respectively. This finding is in marked contrast to US evidence which points to a more prominent role of excess return news in this respect. The bond market findings for both Switzerland and the US are consistent with the view that market participants put more weight on news of macroeconomic, i.e. long-term inflation, risks in periods of exceptionally low real interest rates and in crisis periods than in normal times.

Suggested Citation

  • Dr. Thomas Nitschka, 2014. "The Good? The Bad? The Ugly? Which news drive (co)variation in Swiss and US bond and stock excess returns?," Working Papers 2014-01, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2014-01
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    File URL: https://www.snb.ch/en/publications/research/working-papers/2014/working_paper_2014_01
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    References listed on IDEAS

    as
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    Cited by:

    1. David Haab & Dr. Thomas Nitschka, 2017. "Predicting returns on asset markets of a small, open economy and the influence of global risks," Working Papers 2017-14, Swiss National Bank.

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    More about this item

    Keywords

    bond return; news components; stock return; variance decomposition;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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