Tag Archives: Financial Markets

Bitesize: 250 years of the bond-equity correlation

Matt Roberts-Sklar.

For most of the 18th-20th centuries, government bonds usually behaved like a risky asset. When equity prices fell, bond yields rose, i.e.  bond and equity returns were positively correlated (bond prices move inversely to yields). But since the mid-2000s, bond and equity returns have been negatively correlated, i.e. bonds became a hedge for risk. Before this, the last time this correlation was near zero for a prolonged period was the long depression in the late 19th century.

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Filed under Bitesize, Economic History, Financial Markets

No smog without fire: the financial stability risks around carbon-intensive investments

Rhiannon Sowerbutts.

An abrupt transition to a lower-carbon economy might cause disruption in financial markets as the value of energy companies is rapidly reassessed. Last year there was a sea change in attitudes as several funds divested their fossil fuel related assets, equity analysts and rating agencies began to issue warnings about carbon-intensive firms and the Paris Climate Change agreement was hailed as a breakthrough as it made the concept of a carbon budget that would limit future fossil fuel use mainstream. However, analysis of climate related ‘events’ suggests that although energy firms’ equity prices move in the expected direction this movement isn’t statistically significant. This doesn’t mean as global citizens we can relax, either about financial stability or for the future of the planet.

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Filed under Financial Markets, Financial Stability