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What determines the dynamics of absolute excess returns on stock markets?

  • Kurz, Claudia
  • Kurz-Kim, Jeong-Ryeol
Registered author(s):

    In this paper, we quantify the dynamics of absolute excess returns on stock markets depending on three factors: the average of the absolute excess return, the level of the stock price, and stock market volatility. We also argue that the absolute excess return can be regarded as an empirical measure of the herding behavior of financial investors. Our empirical results for the German stock index show that the absolute excess return depends significantly on all three factors, although volatility may be seen as the strongest factor among them.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165176512006192
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    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 118 (2013)
    Issue (Month): 2 ()
    Pages: 342-346

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    Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:342-346
    Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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    1. Lee, In Ho, 1998. "Market Crashes and Informational Avalanches," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 741-59, October.
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    4. Jeong-Ryeol Kurz-Kim, 2009. "Further evidence for the negative relationship between stock returns and volatility," Applied Economics Letters, Taylor & Francis Journals, vol. 16(13), pages 1295-1300.
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    8. Andrea Morone, 2005. "Financial Market in the Laboratory, an Experimental Analysis of some Stylized Facts," Papers on Strategic Interaction 2005-27, Max Planck Institute of Economics, Strategic Interaction Group.
    9. Venezia, Itzhak & Nashikkar, Amrut & Shapira, Zur, 2011. "Firm specific and macro herding by professional and amateur investors and their effects on market volatility," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1599-1609, July.
    10. Itzhak Venezia & Amrut Nashikkar & Zur Shapira, 2011. "Firm specific and macro herding by professional and amateur investors and their effects on market volatility," Discussion Paper Series dp586, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    11. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
    12. Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-96, July.
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    15. Sushil Bikhchandani & Sunil Sharma, 2001. "Herd Behavior in Financial Markets," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 1.
    16. Morone, Andrea, 2012. "A simple model of herd behavior, a comment," Economics Letters, Elsevier, vol. 114(2), pages 208-211.
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