Resource title

Correlation vs. causality in stock market comovement

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Resource description

This paper seeks to disentangle the sources of correlations between high-, mid- and low-cap stock indexes from the German prime standard. In principle, such comovement can arise from direct spillover between the variables or due to common factors. By standard means, these different components are obviously not identifiable. As a solution, the underlying study proposes specifying ARCH-type models for both the idiosyncratic innovations and a common factor, so that the model structure can be identified through heteroscedasticity. The seemingly surprising result that smaller caps have higher influence than larger ones is explained by asymmetric information processing in financial markets. Broad macroeconomic information is shown to enter the common factor rather than the segment-specific shocks.

Resource author

Enzo Weber

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25236

Resource license

Adapt according to the presented license agreement and reference the original author.