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Exogeneous shocks, risk, and market convergence of real alternative and financial assets: evidence from nonlinear dynamics

Author

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  • Benoît Faye

    (LAREFI University of Bordeaux)

  • Eric Fur

    (LAREFI University of Bordeaux)

  • Stéphanie Prat

    (LAREFI University of Bordeaux)

Abstract

This article investigates the dynamic process of convergence among a set of real alternative (art, fine wine, gold, residential real estate) and financial assets in the US context over the period 2003–2019. The objective is to explore the time-varying behavior of their links considering structural breaks coming from exogenous economic and financial shocks that prevent market convergence from being a linear process. Using a procedure that determines endogenously multiple structural breaks and a rolling co-integration framework, we show that price co-movements depend on the global financial and economic environments. Our results confirm the existence of a long-term co-integration relationship among price series but with structural breaks. We find that exogenous shocks lead to a lower degree of convergence of real alternative and conventional assets, and expansion phases promote market convergence between them. Our results contribute to guiding investors in their efforts to diversify their wealth and portfolio.

Suggested Citation

  • Benoît Faye & Eric Fur & Stéphanie Prat, 2024. "Exogeneous shocks, risk, and market convergence of real alternative and financial assets: evidence from nonlinear dynamics," Annals of Operations Research, Springer, vol. 334(1), pages 497-520, March.
    • Handle: RePEc:spr:annopr:v:334:y:2024:i:1:d:10.1007_s10479-021-04510-5
    DOI: 10.1007/s10479-021-04510-5
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    Keywords

    Real alternative assets; Art; Fine wine; Gold; Residential real estate; Price co-movements; Rolling cointegration;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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