What drives asymmetric dependence structure of asset return comovements?

Sunil S. Poshakwale and Anandadeep Mandal

International Review of Financial Analysis, 2016, vol. 48, issue C, 312-330

Abstract: We examine the determinants of return comovements of three different asset classes and provide critical insights on the key macroeconomic and non-macroeconomic factors which drive the asset return comovements during economic contraction and expansion regimes. We show that amongst the macroeconomic factors, interest rate and inflation have significant effect on the return comovements during the economic contraction regime whilst risk aversion significantly affects the return comovements during the economic expansion regime. The non-macroeconomic factors, output uncertainty, bond illiquidity and depth of recession contribute significantly in explaining the variations of return comovements for all asset pairs during both economic contraction and expansion periods except for real estate-based portfolios. Our results are robust to alternative model specification that uses regime switching MGARCH model.

Keywords: Asset return comovements; Markov Switching Stochastic Volatility model; Time-varying conditional copula; Macro and non-macroeconomic determinants (search for similar items in EconPapers)
JEL-codes: C32 C51 C58 G17 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:48:y:2016:i:c:p:312-330

DOI: 10.1016/j.irfa.2015.07.001

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