Advanced Search
MyIDEAS: Login

More stylized facts of financial markets: leverage effect and downside correlations

Contents:

Author Info

  • Marc Potters

    (Science & Finance, Capital Fund Management)

  • Jean-Philippe Bouchaud

    (Science & Finance, Capital Fund Management
    CEA Saclay;)

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cfm.fr/images/stories/pdf/publication/financial_market/more_stylized_facts_of_financial_markets_leverage_effect_and_downside_correlations.pdf
Our checks indicate that this address may not be valid because: 404 Not Found (http://www.cfm.fr/images/stories/pdf/publication/financial_market/more_stylized_facts_of_financial_markets_leverage_effect_and_downside_correlations.pdf [302 Found]--> https://www.cfm.fr/images/stories/pdf/publication/financial_market/more_stylized_facts_of_financial_markets_leverage_effect_and_downside_correlations.pdf). If this is indeed the case, please notify (Marc Potters)
Download Restriction: no

Bibliographic Info

Paper provided by Science & Finance, Capital Fund Management in its series Science & Finance (CFM) working paper archive with number 29960.

as in new window
Length:
Date of creation: Jan 2001
Date of revision:
Publication status: Published in Physica A 299 (1-2) (2001) pp. 60-70
Handle: RePEc:sfi:sfiwpa:29960

Contact details of provider:
Postal: 6 boulevard Haussmann, 75009 Paris, FRANCE
Phone: +33.1.4949.5949
Fax: +33.1.4770.1740
Email:
Web page: http://www.science-finance.fr/
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jean-Philippe Bouchaud & Andrew Matacz & Marc Potters, 2001. "The leverage effect in financial markets: retarded volatility and market panic," Science & Finance (CFM) working paper archive 0101120, Science & Finance, Capital Fund Management.
  2. Andrew Ang & Geert Bekaert, 1999. "International Asset Allocation with Time-Varying Correlations," NBER Working Papers 7056, National Bureau of Economic Research, Inc.
  3. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Wintenberger, Olivier & Cai, Sixiang, 2011. "Parametric inference and forecasting in continuously invertible volatility models," MPRA Paper 31767, University Library of Munich, Germany.
  2. Vicente Medina Martínez & Ángel Pardo Tornero, 2012. "Stylized facts of CO2 returns," Working Papers. Serie AD 2012-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Wei-Xing Zhou, 2007. "Universal price impact functions of individual trades in an order-driven market," Papers 0708.3198, arXiv.org, revised Apr 2008.
  4. Goswami, B. & Ambika, G. & Marwan, N. & Kurths, J., 2012. "On interrelations of recurrences and connectivity trends between stock indices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(18), pages 4364-4376.
  5. Florescu, Ionuţ & Pãsãricã, Cristian Gabriel, 2009. "A study about the existence of the leverage effect in stochastic volatility models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(4), pages 419-432.
  6. B. Goswami & G. Ambika & N. Marwan & J. Kurths, 2011. "On interrelations of recurrences and connectivity trends between stock indices," Papers 1103.5189, arXiv.org.
  7. Ladislav Kristoufek, 2014. "Leverage effect in energy futures," Papers 1403.0064, arXiv.org.
  8. Gu, Gao-Feng & Zhou, Wei-Xing, 2007. "Statistical properties of daily ensemble variables in the Chinese stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 383(2), pages 497-506.
  9. Zoltan Eisler & Janos Kertesz, 2004. "Multifractal model of asset returns with leverage effect," Papers cond-mat/0403767, arXiv.org, revised May 2004.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:sfi:sfiwpa:29960. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marc Potters).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.