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In search of the determinants of European asset market comovements.

Gomes, P. and Taamouti, A. (2016) 'In search of the determinants of European asset market comovements.', International review of economics and finance., 44 . pp. 103-117.

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.

Item Type:Article
Full text:(AM) Accepted Manuscript
Available under License - Creative Commons Attribution Non-commercial No Derivatives.
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Status:Peer-reviewed
Publisher Web site:http://dx.doi.org/10.1016/j.iref.2016.03.005
Publisher statement:© 2016 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Date accepted:29 February 2016
Date deposited:02 March 2016
Date of first online publication:16 March 2016
Date first made open access:16 March 2017

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