Lead Lag relationship between different Financial Assets

This study investigates the causal relationship and feedback mechanisms between equity indexes and fixed-income securities across eight developed economies: the United States, Germany, Japan, Spain, France, the UK, Italy and Australia. We employed bivariate vector autoregressive (VAR) models, pairwise Granger causality tests and Geweke’s feedback measures to both daily and weekly data over the period from December 31, 1987 to April 23, 2025. Results reveal that the US equity market plays a leading role in global return and volatility transmission, particularly among equity indexes. European indexes also show notable influence, while Asia-Pacific instruments reveal limited impact beyond their domestic markets. Geweke feedback measures indicate a predominance of contemporaneous feedback over lagged feedback, suggesting that information is mostly transmitted within the same time interval rather than with delay. Interestingly, major indexes such as the S&P 500 and DAX 40 exhibit a stronger lagged influence from other indexes than the influence they exert on them. The results also reveal stronger information transmission within the same asset class. A comparison of the period before and after the 2008 financial crisis show increased equity market integration and weakened relationships between major equity indexes and bonds.