A Study on Stock-Bond Price Index in the US Market


Authors : Sohail Raza; Shahzad Munir

Volume/Issue : Volume 7 - 2022, Issue 5 - May

Google Scholar : https://bit.ly/3IIfn9N

Scribd : https://bit.ly/3xl8yHD

DOI : https://doi.org/10.5281/zenodo.6626242

This paper attempts to find out the question of whether the benchmark bond yields affect thestock index in the US. To study the impact of the US bond market on the US stock indices, this study employs the Ordinary Least Square (OLS) technique, where the stock index of S&P 500, NYSE composite, and Dow Jones indices are used as the dependent variable, and US 10Yr Bond yield as the main independent variable. The time series used in this analysis were found nonstationary and the first difference is taken to convert them into stationary series. The Augmented Dickey Fuller(ADF) test statistics show that the series becomes stationary at first difference. Three separate regressions on S&P 500, NYSE Composite, and Dow Jones at first difference order are performed to analyze the effect of bond yield on stock indices with a reasonable set of control variables such as inflation, unemployment, crime rates, real effective exchange rate, etc. The statistical results show that the benchmark bond yield has a positive significant impact on the stock index of S&P 500, NYSE Composite, and Dow Jones. The economic implication of the results is that the benchmark bond yield predicts the stock index significantly and there is a moderate amount of correlation between the estimates and the time series as shown by the Variance Inflation Factor (VIF) respectively

Keywords : Bond yields; NYSE, Dow Jones; S&P 500; US

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