Time-varying dependence between stock and government bond returns: International evidence with dynamic copulas

This paper investigates the dependence pattern between stock and long-term government bond returns for a wide range of developed countries over the last two decades by using a dynamic DCC-GARCH-copula model. This approach allows obtaining a flexible and comprehensive description of the time variation in the linkage between stock and bond markets. The empirical results show that the dependence structure between stock and 10-year government bond returns varies significantly over time for most countries. In particular, a positive stock-bond association is observed during the 1990s, while the relationship becomes negative from the early 2000s,supporting the presence of flight-to-quality effects. In addition,no evidence of asymmetric and tail dependence is found for the vast majority of countr