Article

Risk appetite and jumps in realized correlation

Details

Citation

Demirer R, Gkillas K, Kountzakis C & Mavragani A (2020) Risk appetite and jumps in realized correlation. Mathematics, 8 (12), Art. No.: 2255. https://doi.org/10.3390/math8122255

Abstract
This paper examines the role of non-cash flow factors over correlation jumps in financial markets. Utilizing time-varying risk aversion measure as a proxy for investor sentiment and the cross-quantilogram method applied to intraday data, we show that risk aversion captures significant predictive power over realized stock-bond correlation jumps at different quantiles and lags. The predictive relation between correlation jumps and time-varying risk aversion is found to be asymmetric, as we detect a heterogeneous dependence pattern across different quantiles and lag orders. Our findings underline the importance of non-cash flow factors over correlation jumps, highlighting the role of behavioral factors in optimal portfolio allocations and the effectiveness of diversification strategies.

Keywords
realized correlation jumps; stock-bond correlation; time-varying risk aversion

Journal
Mathematics: Volume 8, Issue 12

StatusPublished
Publication date31/12/2020
Publication date online21/12/2020
Date accepted by journal15/12/2020
URLhttp://hdl.handle.net/1893/32171
eISSN2227-7390