The Role of Bond Yield in Financial Asset Markets: Application of the Regression Kink Model

Abstract

This study aims at exploring the nonlinear impact of bond yield on six major financial markets, consisting of gold, crude oil, the stock price index which comprise the MSCI Europe Index and the MSCI Asia Index, the US$ Index, and bitcoin. In addition, this study also aims to reveal the turning point of the relationship between bond yield and the six financial markets. To explore these issues, this study utilizes the kink regression model. The results confirm the presence of the kink effect in the linkage between bond and other six financial markets and also show that the negative impacts of the bond market have a clearer effect than the positive ones on bitcoin, gold, MSCI Asia, and USD markets. This implies bond is a hedge against those markets. Finally, we also find that the point where there will be a new form of change (turning points) of bond against gold, crude oil, MSCI EU, MSCI Asia, and bitcoin are 0.436, 0.910, 0.555, 0.608, 0.878, and 0.496, respectively.