Economics, Econometrics and Finance
4 years ago

Stocks soar, bonds plummet: Market volatility reshapes risk-return trade-off.

SSRN Electronic Journal
Nonlinearity and Flight to Safety in the Risk-Return Trade-Off for Stocks and Bonds
Tobias Adrian, Richard K. Crump, Erik Vogt

Paper Summary

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The study found that stock and bond returns are affected by past market volatility in a non-linear way. When stock market volatility is moderate to high, expected returns for stocks increase, while they decrease for Treasury securities. This suggests that investors tend to move towards safer assets during times of high market volatility.