 More stylized facts of financial markets: leverage effect and downside correlationsMarc Potters () and
Jean-Philippe Bouchaud
No 29960, Science & Finance (CFM) working paper archive from Science & Finance, Capital Fund Management Abstract: We discuss two more universal features of stock markets: the so-called leverage effect (a negative correlation between past returns and future volatility), and the increased downside correlations. For individual stocks, the leverage correlation can be rationalized in terms of a new `retarded' model which interpolates between a purely additive and a purely multiplicative stochastic process. For stock indices a specific market panic phenomenon seems to be necessary to account for the observed amplitude of the effect. As for the increase of correlations in highly volatile periods, we investigate how much of this effect can be explained within a simple non-Gaussian one-factor description with time independent correlations. In particular, this one-factor model can explain the level and asymmetry of empirical exceedance correlations, which reflects the fat-tailed and negatively skewed distribution of market returns. JEL-codes: G1 G14 (search for similar items in EconPapers) Published in Physica A 299 (1-2) (2001) pp. 60-70 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sfi:sfiwpa:29960 Access Statistics for this paper More papers in Science & Finance (CFM) working paper archive from Science & Finance, Capital Fund Management 6 boulevard Haussmann, 75009 Paris, FRANCE. Contact information at EDIRC. |
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