Discussion paper

DP14708 Common shocks in stocks and bonds

We propose a new approach to identify economic shocks (monetary, growth, and risk-premium news) from stock returns and Treasury yields. The method allows us to study the drivers of asset prices at a daily frequency over the last three-and-a-half decades. We analyze the content of news from the Fed, major macro announcements, and sources of time-varying stock-bond comovement. The results emphasize the importance of two risk-premium shocks—compensation for discount-rate and cash-flow news—which have different effects on stocks and bonds. The impact of the Fed on both risk premiums explains why stocks but not bonds earn high FOMC-day returns.


Cieslak, A and H Pang (2020), ‘DP14708 Common shocks in stocks and bonds‘, CEPR Discussion Paper No. 14708. CEPR Press, Paris & London. https://cepr.org/publications/dp14708