Time-Varying Comovement of Stock and Bond Markets and Its Core Drivers in the Pacific Basin Region

Using the nonlinear quantile regression and realized moments techniques, this study finds evidence that financial uncertainty is negatively associated with a sustainable interdependence (i.e., comovement) of stock and government bond markets in the Pacific basin region. Besides, investors’ affirmative expectation for the future economic state is positively associated with comovement of the asset markets in this region. The former supports the validity of the flight-to-quality for the asset market comovement and the latter validates the wealth effectin this region. Our findings imply that interdependence of stock and bond markets is crucial for investors’ efficient diversification and sustainable economic growth via effective securities financing of companies in the country.