Is Corporate Bond Market Performance Connected with Stock Market Performance?

Stock markets and bond markets are known to interact. Specifically, the
common stock market trend (i.e., business cycle also termed market/systematic
risk) impacts the common corporate bond market trend (i.e., credit cycle).
First, we disentangle the common latent component from total stock returns,
namely the common systematic/unobserved stock market component. Second,
we extract the common latent component from total bond returns, namely the
common unobserved/systematic corporate bond component.Then, we estimate
the dynamic relationship between systematic total stock returns and
systematic total bond returns over time (i.e., co- and anti-monotonicity risk).
We characterize therefore the time-varying correlation risk (i.e., correlation
risk structure) between stock performance and corporate bond performance.
Results are instructive in a dynamic risk management prospect with regard
to equity- and corporate bond-based portfolios. . .