A spectral perspective on excess volatility
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.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (2015)
Issue (Month): 9 (June)
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAEL20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAEL20|
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.:
- Mundt, Philipp & Förster, Niels & Alfarano, Simone & Milakovi?, Mishael, 2014.
"The real versus the financial economy: A global tale of stability versus volatility,"
Economics - The Open-Access, Open-Assessment E-Journal,
Kiel Institute for the World Economy (IfW), vol. 8, pages 1-26.
- Alfarano, Simone & Förster, Niels & Milaković, Mishael & Mundt, Philipp, 2013. "The real versus the financial economy: A global tale of stability versus volatility," Economics Discussion Papers 2013-8, Kiel Institute for the World Economy (IfW).
- Alfarano, Simone & Milaković, Mishael & Irle, Albrecht & Kauschke, Jonas, 2012. "A statistical equilibrium model of competitive firms," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 136-149.
- Irle, Albrecht & Milaković, Mishael & Alfarano, Simone & Kauschke, Jonas, 2008. "A Statistical Equilibrium Model of Competitive Firms," Economics Working Papers 2008-10, Christian-Albrechts-University of Kiel, Department of Economics.
- G. Livan & S. Alfarano & E. Scalas, 2011. "The fine structure of spectral properties for random correlation matrices: an application to financial markets," Papers 1102.4076, arXiv.org.
- Livan, Giacomo & Alfarano, Simone & Scalas, Enrico, 2011. "The fine structure of spectral properties for random correlation matrices: an application to financial markets," MPRA Paper 28964, University Library of Munich, Germany.
- Toda, Alexis Akira, 2012. "The double power law in income distribution: Explanations and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 364-381.
- Bottazzi, Giulio & Secchi, Angelo, 2003. "Why are distributions of firm growth rates tent-shaped?," Economics Letters, Elsevier, vol. 80(3), pages 415-420, September. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:22:y:2015:i:9:p:745-750. 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: (Chris Longhurst)
If references are entirely missing, you can add them using this form.