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Department of Economics, Copenhagen Business School Working Paper Series, Department of Economics, Copenhagen Business School

No 04-2000:
ON THE RELATIONSHIP BETWEEN THE DANISH STOCK AND BOND MARKET IN THE MEDIUM AND LONG TERM

Jan Overgaard Olesen and Ole Risager

Abstract: This short paper studies the empirical relationship between realized stock returns and bond

yields at the 5- and 10-year investment horizons, respectively. Using annual Danish data since

1927, we find that stock returns and bond yields are closely linked in the medium and long

term, as we estimate strong cointegrating relations at both horizons. Hence, at the 5- and 10-

year investment horizons a high bond yield tends to go hand in hand with a high stock return,

and vice versa. Results show that stock returns tend to respond less than one-to-one to

changes in the bond yield.

Keywords: stock returns; Bond yields; Denmark; (follow links to similar papers)

JEL-Codes: E40; G10; G30; H10; (follow links to similar papers)

22 pages, February 1, 2000

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