In search of the determinants of European asset market comovements

Gomes, P.; Taamouti, A.

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 16, 2017
• Journal: International Review of Economics and Finance
• Print ISSN: 1059-0560
• Electronic ISSN: 1873-8036
• 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