Common Shocks in Stocks and Bonds

57 Pages Posted: 5 Jul 2021 Last revised: 3 Jan 2022

See all articles by Anna Cieslak

Anna Cieslak

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Hao Pang

Duke University, Fuqua School of Business, Students

Multiple version iconThere are 2 versions of this paper

Date Written: December 2020

Abstract

We propose an approach to identifying economic shocks (monetary, growth, and risk-premium news) from stock returns and Treasury yield changes, which allows us to study the drivers of asset prices at a daily frequency since the early 1980s. We apply the identification to examine investors’ responses to news from the Fed and key macro announcements. We uncover two risk-premium shocks—time-varying compensation for discount-rate and cash-flow news—which have distinct effects on stocks and bonds. Since the mid-1990s, the Fed-induced reductions in both risk premium sources have generated high average stock returns but an ambiguous response in bonds on FOMC days.

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Suggested Citation

Cieslak, Anna and Pang, Hao, Common Shocks in Stocks and Bonds (December 2020). NBER Working Paper No. w28184, Available at SSRN: https://ssrn.com/abstract=3880208

Anna Cieslak (Contact Author)

Duke University - Fuqua School of Business ( email )

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HOME PAGE: https://sites.google.com/site/ancieslak/

National Bureau of Economic Research (NBER) ( email )

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Hao Pang

Duke University, Fuqua School of Business, Students ( email )

Durham, NC
United States

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