Publication:
In search of the determinants of European asset market comovements

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2016-07-01
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Elsevier
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Abstract
We show, in a broad class of affine general equilibrium models with long-run risk, that the covariances between asset returns are linear functions of risk factors. We use a dynamic conditional correlation model to measure the covariances of stock and sovereign bond markets in the Euro Area. We use a new approach to measure risk factors based on Google search data. The factors explain 50 to 60% of the variation of the covariances between European stocks and 25 to 35% of the covariances between European bonds. The information improves the portfolio performance compared to an equally weighted portfolio. (C) 2016, Elsevier Inc. All rights reserved.
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Stock and bond comovements, Affine general equilibrium models, Eurozone crisis, Google trends, Portfolio weights modeling, Unión Europea, European Union
Bibliographic citation
Gomes, P., Taamouti, A. (2016). In search of the determinants of European asset market comovements. International Review of Economics & Finance, v. 44, pp. 103-107.