{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,9,24]],"date-time":"2026-09-24T17:08:21Z","timestamp":1790269701235,"version":"4.1.0"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":26,"publisher":"Elsevier BV","license":[{"start":{"date-parts":[[2026,1,1]],"date-time":"2026-01-01T00:00:00Z","timestamp":1767225600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/www.uspto.gov\/ip-policy\/copyright-policy\/copyright-basics"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>The stock-bond correlation varies substantially over time, altering the diversification benefits of long-term government bonds. We embed a two-state Markov-switching process for the stock-bond correlation into an incomplete-markets life-cycle model in which households invest in cash, stocks, and long-term government bonds. Households infer the latent correlation regime from observed returns and condition their portfolios on posterior beliefs. The model generates sizable differences in optimal portfolios across beliefs, with persistence in the estimated correlation process playing a central role in their magnitude. These effects are concentrated near and during retirement, as financial wealth becomes a larger share of household resources. Despite these sizable allocation effects, conditioning portfolios on covariance predictability raises ex ante welfare by only 0.4 basis points of lifetime consumption on average. However, welfare gains are substantially larger for households that experience sustained periods of high posterior probability of the negative-correlation regime, reaching approximately 2.9 basis points for households with more than twenty years of such exposure.<\/jats:p>","DOI":"10.2139\/ssrn.7519538","type":"posted-content","created":{"date-parts":[[2026,9,24]],"date-time":"2026-09-24T16:42:51Z","timestamp":1790268171000},"source":"Crossref","is-referenced-by-count":0,"title":["Stock-Bond Correlation Regimes and Portfolio Choice over the Life-Cycle"],"prefix":"10.2139","author":[{"given":"Seth","family":"Neumuller","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Jess","family":"Yao","sequence":"additional","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","reference":[{"issue":"4","key":"ref1","doi-asserted-by":"crossref","first-page":"1137","DOI":"10.1093\/rfs\/15.4.1137","article-title":"International asset allocation with regime shifts","volume":"15","author":"A Ang","year":"2002","journal-title":"The Review of Financial Studies"},{"issue":"1","key":"ref2","article-title":"United States Life Tables","volume":"71","author":"E Arias","year":"2019","journal-title":"National Vital Statistics Reports"},{"key":"ref3","doi-asserted-by":"crossref","first-page":"220","DOI":"10.1016\/j.red.2019.06.004","article-title":"Can income differences explain the racial wealth gap? 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