Stock market correlations during the financial crisis of 2008–2009: Evidence from 50 equity markets
AbstractUsing data from 50 equity markets we examine conditional and unconditional correlations around two major banking events during the financial crisis of 2008–09. To measure the value of covariance information on the augmented DCC model used in the study, a portfolio in-sample estimation is performed. We show that by taking into account the change in the level of variance in high volatility periods, the estimates of the conditional covariance are more efficient in capturing the dynamics of the stock markets variance. Furthermore, in a two-asset allocation framework, the model consistently generates relatively low portfolio variances, implying substantial benefits in portfolio diversification.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Financial Analysis.
Volume (Year): 28 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/620166
Dynamic conditional correlation; Financial crisis; Interdependence;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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