Quantile Coherency across Bonds, Commodities, Currencies, and Equities

This paper examines quantile coherency in bonds, commodities, currencies, and equities usinga novel quantile coherency approach. While recent literature has explored single-frequencytail - and time-frequency dependence in asset returns, we provide fresh evidence on asset returndependence across quantiles (proxying business cycles or market conditions) at differentfrequencies (representing investment horizons). Considering sixty-seven individual asset returnseries in four asset classes, we observe that low frequency (yearly) dependence is stronger inextreme conditions in the bond, foreign exchange, and equity markets. The short-termdependence in the median quantile is typically weak. Specifically, we find the strongestdependence between the German and French bond markets, heating oil and crude oil, gold andsilver, British Pound and Euro, French and German and Canadian and US equities. As wereport asset return interdependence in different business cycles and at different time horizons,these results have important implications for portfolio allocation and investment strategyformulation