Abstract
We examine the determinants of return comovements of three different asset classes and provide critical insights on the key macroeconomic and non-macroeconomic factors which drive the asset return comovements during
economic contraction and expansion regimes. We show that amongst the macroeconomic factors, interest rate and inflation have significant effect on the return comovements during the economic contraction regime whilst risk aversion significantly affects the return comovements during the economic expansion regime. The nonmacroeconomic factors, output uncertainty, bond illiquidity and depth of recession contribute significantly in explaining the variations of return comovements for all asset pairs during both economic contraction and expansion periods except for real estate-based portfolios. Our results are robust to alternative model specification that uses regime switching MGARCH model.
economic contraction and expansion regimes. We show that amongst the macroeconomic factors, interest rate and inflation have significant effect on the return comovements during the economic contraction regime whilst risk aversion significantly affects the return comovements during the economic expansion regime. The nonmacroeconomic factors, output uncertainty, bond illiquidity and depth of recession contribute significantly in explaining the variations of return comovements for all asset pairs during both economic contraction and expansion periods except for real estate-based portfolios. Our results are robust to alternative model specification that uses regime switching MGARCH model.
Original language | English |
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Pages (from-to) | 312-330 |
Journal | International Review of Financial Analysis |
Volume | 48 |
Early online date | 1 Aug 2015 |
DOIs | |
Publication status | Published - Dec 2016 |
Keywords
- Asset return comovements
- Markov Switching Stochastic Volatility model
- Time-varying conditional copula
- Macro and non-macroeconomic determinants