A spectral perspective on excess volatility

Livan, Giacomo, Alfarano, Simone, Milakovic, Mishael and Scalas, Enrico (2015) A spectral perspective on excess volatility. Applied Economics Letters, 22 (90). pp. 745-750. ISSN 1350-4851

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Abstract

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: 01 Aug 2019 16:00
URI: http://sro.sussex.ac.uk/id/eprint/51470

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