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In search of the determinants of European asset market comovements

Gomes, P.; Taamouti, A.

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Authors

P. Gomes



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.

Citation

Gomes, P., & Taamouti, A. (2016). In search of the determinants of European asset market comovements. International Review of Economics and Finance, 44, 103-117. https://doi.org/10.1016/j.iref.2016.03.005

Journal Article Type Article
Acceptance Date Feb 29, 2016
Online Publication Date Mar 16, 2016
Publication Date Jul 1, 2016
Deposit Date Feb 29, 2016
Publicly Available Date Mar 28, 2024
Journal International Review of Economics and Finance
Print ISSN 1059-0560
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 44
Pages 103-117
DOI https://doi.org/10.1016/j.iref.2016.03.005
Public URL https://durham-repository.worktribe.com/output/1418602

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