The Dynamic Correlation between Stock and Bond Markets in Russia

The paper analyzes the correlation between stock and bond markets in Russia in the period from 2014 to 2018. Proved the existence of the contagion effect, which causes these markets to move in one direction. At the same time, a change in the stock index occurs earlier and is the reason for the growth or decline of government bond index values. In the midst of a crisis, under the influence of flight-to-quality effect, the correlation between the markets weakens. The relationship of stock and bond markets decreases in the most difficult time, when the ruble weakening was the most significant (late 2014-early 2015). The relationship between the markets is positively affected by the expected interest rate, unexpected inflation, external macroeconomic factors (the period of quantitative easing, the share of non-residents on the OFZ market). At the same time, the correlation between MICEX and RGBI has a negative effect on the RVI index. The behavior of financial market participants is significantly affected by the values of the zero-coupon yield curve of the government bond market, which is a signal for a change in the interest rate. In the period of economic stability 2016-2018, the GDP growth rate per month has a significant impact, its increase raises the prices of both assets and, accordingly, strengthens their relationship. The models built in this study can be the basis for making decisions about asset allocation, hedging by financial market participants. In addition, the results can be used by regulators in the implementation of supervision, control and building an economic strategy in financial markets.