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What determines the dynamics of absolute excess returns on stock markets?

Claudia Kurz and Jeong-Ryeol Kurz-Kim

Economics Letters, 2013, vol. 118, issue 2, 342-346

Abstract: In this paper, we quantify the dynamics of absolute excess returns on stock markets depending on three factors: the average of the absolute excess return, the level of the stock price, and stock market volatility. We also argue that the absolute excess return can be regarded as an empirical measure of the herding behavior of financial investors. Our empirical results for the German stock index show that the absolute excess return depends significantly on all three factors, although volatility may be seen as the strongest factor among them.

Keywords: Absolute excess returns; Uncertainty; Herding behavior; Mean reverting; Stock market volatility (search for similar items in EconPapers)
JEL-codes: D8 G02 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:342-346