Stock-Bond Return Correlation: Understanding the Changing Behaviour
David G. McMillan (University of Stirling)
March 2025
The stock and bond return correlation remains important given its central role in, and implications for, portfolio behaviour. Previous, primarily US, evidence indicates sign switching behaviour, which implies that bonds change between being a diversifier and a hedge. This paper considers the time-varying nature of the stock-bond correlation for G7 markets, including its economic drivers, and whether they are themselves time-varying. Using monthly data over a period spanning 1980 to 2023 evidence demonstrates that the correlation switches from positive to negative around 2000 for six of the seven markets (the switch for Japan occurs in the first half of the 1990s).

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Israel attacked Iran’s capital early Friday, targeting the country’s nuclear program. The attacked also killed at least two top military officers. Iran vowed a “harsh” response. President Trump said that “the next already planned attacks” could be ”even more brutal,” and warned that Tehran “must make a deal, before there is nothing left.”

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