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Report from the Seventh Fixed Income Seminar, Part V: Bond/Equity Market Linkages
May 1, 1988
Barra's annual Fixed Income Seminar took place in October 1987, one week before the infamous stock market crash of October 19. At that time we noted an extremely rare event that had already occurred in the year's financial markets. For the first time in recent history, fixed income and equity returns were not only moving in different directions, but were correlated at an unprecedented - .44.(1) Historically, of course, changes in interest rates have had parallel, driving effects on both the bond and stock markets. Prompted in part by the surprising events of 1987, we decided to take a closer look not only at the links between the stock and bond markets as a whole, but also at connections between common factors in these markets.