Economic Policy Uncertainty and Stock-Bond Correlations: Evidence from the Thailand Market

Abstract

This study examines the effects of economic policy uncertainty (EPU) index shocks on stock-bond correlations in the case of Thailand. The method of research used applied the EPU index as a proxy for economic policy uncertainty in Thailand, and employed a dynamic copula method with the EPU index as an additional exogenous variable to create a conditional correlation. The data set used in this study is the monthly return of stock (SET) and bond (10-year government bond) data from June 2005 to June 2020. The empirical results show that the high EPU index affects the stock-bond correlations. Due to the high level of the EPU results, the investors have no confidence in the economy and paid attention to the economic policy uncertainty and tended to adjust the proportion of holdings in risky assets or stocks and safe-haven assets or bonds to be consistent.