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.
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.
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|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/|
|Record Created:||02 Mar 2016 10:50|
|Last Modified:||19 Mar 2017 00:41|
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