PT  - JOURNAL ARTICLE
AU  - Les Gulko
TI  - Decoupling
AID  - 10.3905/jpm.2002.319843
DP  - 2002 Apr 30
TA  - The Journal of Portfolio Management
PG  - 59--66
VI  - 28
IP  - 3
4099  - https://pm-research.com/content/28/3/59.short
4100  - https://pm-research.com/content/28/3/59.full
AB  - The returns of U.S. stocks and Treasury bonds are usually positively correlated, or coupled. As the stock market plunges, Treasury bonds tend to rally, and the daily returns become negatively correlated, or decoupled. In this article, the author examines the decoupling that accompanies stock market crashes. He begins by presenting empirical evidence of the stock–bond decoupling and next examines some implications. The main practical implication is that U.S. Treasury bonds offer effective diversification during financial crises, at the time it is needed most. The main theoretical implication is that normal probability distributions (both conditional and unconditional) generally misspecify the joint returns of U.S. stocks and Treasury bonds.