In search of the determinants of European asset market comovements

Pedro Gomes and Abderrahim Taamouti

International Review of Economics & Finance, 2016, vol. 44, issue C, 103-117

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.

Keywords: Stock and bond comovements; Affine general equilibrium models; Eurozone crisis; Google Trends; Portfolio weights modeling (search for similar items in EconPapers)
JEL-codes: C22 E44 G12 G15 G17 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:44:y:2016:i:c:p:103-117

DOI: 10.1016/j.iref.2016.03.005

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