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A spectral perspective on excess volatility
journal contribution
posted on 2023-06-08, 19:09 authored by Giacomo Livan, Simone Alfarano, Mishael Milakovic, Enrico ScalasWe perform a careful spectral analysis of the correlation structures observed in real and financial returns for a large pool of long-lived US corporations and find that financial returns are characterized by strong collective fluctuations that are absent from real returns. Once the excessive comovement is subtracted from individual financial time series, the behaviour of real and financial returns is virtually identical in both the cross-sectional and time series domains, thereby demonstrating the inherently collective nature of excessive fluctuations. Put differently, if excess volatility is to be reduced, then one would do well to inhibit excess comovement first. At any rate, the excessive behaviour in volatility and comovement should no longer be studied in isolation of each other.
History
Publication status
- Published
File Version
- Submitted version
Journal
Applied Economics LettersISSN
1350-4851Publisher
Taylor & FrancisExternal DOI
Issue
90Volume
22Page range
745-750Department affiliated with
- Mathematics Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2014-11-24Usage metrics
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