A spectral perspective on excess volatility

Livan, Giacomo, Alfarano, Simone, Milakovic, Mishael and Scalas, Enrico (2014) A spectral perspective on excess volatility. Applied Economics Letters. ISSN 1350-4851

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We 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.

Item Type: Article
Schools and Departments: School of Mathematical and Physical Sciences > Mathematics
Subjects: H Social Sciences > HB Economic theory. Demography > HB0241 Production. Theory of the firm. Supply-side economics
Q Science > QA Mathematics > QA0276 Mathematical statistics
Related URLs:
Depositing User: Enrico Scalas
Date Deposited: 24 Nov 2014 12:15
Last Modified: 06 Mar 2017 23:39
URI: http://srodev.sussex.ac.uk/id/eprint/51470

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