New research reveals strong link between stock, bond, and money markets
The article explores how information impacts volatility in stock, bond, and money markets. Traders adjust their expectations and trade based on new information, leading to volatility linkages between markets. In ideal conditions, volatility changes are perfectly correlated across markets due to hedging. However, real-world factors limit this spillover effect. The study finds strong volatility linkages between the three markets, especially after the 1987 stock market crash.