Abstract
We disaggregate the correlation between S&P 500, U.S. bond, oil, commodities and gold returns under bearish and bullish market states. In doing so, we apply a novel quantile-on-quantile (QQ) approach, on the monthly data from January 1982 to December 2015, to construct correlation estimates between the quantile of S&P 500 and quantile of other markets. This approach captures the dependence between the distributions of U.S. stock return and other markets and uncovers two nuance features. First, higher dependence of U.S. bond and Gold with U.S. stock market returns is found when the U.S. stock market is bullish (i.e. at upper U.S. return quantiles). Second, higher dependence of U.S. commodities and oil with U.S. stock market returns exists when the U.S. stock market is bearish (i.e. at lower U.S. return quantiles). Finally, the relationship between U.S equities and other investment markets is asymmetric.