Causal Slaving of the U.S. Treasury Bond Yield Antibubble by the Stock Market Antibubble of August 2000

W. -X. Zhou; D. Sornette

doi:10.1016/j.physa.2004.02.009

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Causal Slaving of the U.S. Treasury Bond Yield Antibubble by the Stock Market Antibubble of August 2000

W. -X. Zhou·D. Sornette

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Abstract

Using the descriptive method of log-periodic power laws (LPPL) based on a theory of behavioral herding, we use a battery of parametric and non-parametric tests to demonstrate the existence of an antibubble in the yields with maturities larger than 1 year since October 2000. The concept of ``antibubble'' describes the existence of a specific LPPL pattern that is thought to reflect collective herding effects. From the dependence of the parameters of the LPPL formula as a function of yield maturities and using lagged cross-correlation calculations between the S&P 500 and bond yields, we find strong evidence for the following causality: Stock Market $\to$ Fed Reserve (Federal funds rate) $\to$ short-term yields $\to$ long-term yields (as well as a direct and instantaneous influence of the stock market on the long-term yields). Our interpretation is that the FRB is ``causally slaved'' to the stock market (at least for the studied period), because the later is (taken as) a proxy for the present and future health of the economy.

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BibTeX RIS

W. -X. Zhou, D. Sornette. 2003-12-27. Causal Slaving of the U.S. Treasury Bond Yield Antibubble by the Stock Market Antibubble of August 2000. https://doi.org/10.1016/j.physa.2004.02.009

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