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

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  • Kurz, Claudia
  • Kurz-Kim, Jeong-Ryeol

Abstract

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.

Suggested Citation

  • Kurz, Claudia & Kurz-Kim, Jeong-Ryeol, 2013. "What determines the dynamics of absolute excess returns on stock markets?," Economics Letters, Elsevier, vol. 118(2), pages 342-346.
    • Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:342-346
    DOI: 10.1016/j.econlet.2012.11.029
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    Cited by:

    1. Kurz-Kim, Jeong-Ryeol, 2016. "Black Monday, globalization and trading behavior of stock investors," Discussion Papers 18/2016, Deutsche Bundesbank.
    2. Kizys, Renatas & Tzouvanas, Panagiotis & Donadelli, Michael, 2021. "From COVID-19 herd immunity to investor herding in international stock markets: The role of government and regulatory restrictions," International Review of Financial Analysis, Elsevier, vol. 74(C).
    3. Ferreruela, Sandra & Mallor, Tania, 2021. "Herding in the bad times: The 2008 and COVID-19 crises," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).

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    More about this item

    Keywords

    Absolute excess returns; Uncertainty; Herding behavior; Mean reverting; Stock market volatility;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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