Risk Appetite and Jumps in Realized Correlation

Riza Demirer, Konstantinos Gkillas, Christos Kountzakis and Amaryllis Mavragani
Additional contact information
Konstantinos Gkillas: Department of Management Science and Technology, University of Patras, 265 04 Patras, Greece
Christos Kountzakis: Department of Statistics and Actuarial-Financial Mathematics, School of Sciences, University of the Aegean, 832 00 Samos, Greece
Amaryllis Mavragani: Department of Computing Science and Mathematics, University of Stirling, Stirling FK9 4LA, UK

Mathematics, 2020, vol. 8, issue 12, 1-11

Abstract: This paper examines the role of non-cash flow factors over correlation jumps in financial markets. Utilizing time-varying risk aversion measure as a proxy for investor sentiment and the cross-quantilogram method applied to intraday data, we show that risk aversion captures significant predictive power over realized stock-bond correlation jumps at different quantiles and lags. The predictive relation between correlation jumps and time-varying risk aversion is found to be asymmetric, as we detect a heterogeneous dependence pattern across different quantiles and lag orders. Our findings underline the importance of non-cash flow factors over correlation jumps, highlighting the role of behavioral factors in optimal portfolio allocations and the effectiveness of diversification strategies.

Keywords: realized correlation jumps; stock-bond correlation; time-varying risk aversion (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2227-7390/8/12/2255/pdf (application/pdf)
https://www.mdpi.com/2227-7390/8/12/2255/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jmathe:v:8:y:2020:i:12:p:2255-:d:465632

Access Statistics for this article

Mathematics is currently edited by Ms. Emma He

More articles in Mathematics from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().