Matched-Long Term Maturity Stock and Bond Returns in International Markets

This paper examines the relationship between real stock returns and matched-maturity long-term bond yields for 16 countries. We find a strong positive correlation between real stock returns and corresponding matched-maturity long-term bond returns for every country in the sample. Our findings also indicate that the volatility of long term real stock returns is closely related to the volatility of long term real bond yields. Finally, an additional cross-sectional analysis indicates that the sensitivity of real stock returns to real bond yields in each country is negatively related to the average rate of inflation and the coefficient of variation of these inflation rates.