Asymmetric correlations in equity returns: a fundamental-based explanation
AbstractMany studies have shown that the correlation of stock portfolio returns is higher during market downturns, while very few of them offer an explanation for the causes of such an asymmetry. This article examines potential fundamental causes for the phenomenon. We find that such an asymmetry is caused by the following sources during market downturns: increasing common fundamental risk, higher correlation of individual fundamental risk and more sensitive loadings of these risk factors. We also find that these fundamental factors can only partially explain the asymmetric correlation. Possible mechanisms for these sources to drive the asymmetry are also discussed in the article.
Download InfoIf 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.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Financial Economics.
Volume (Year): 21 (2011)
Issue (Month): 6 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAFE20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Marc Joëts, 2013.
"Energy price transmissions during extreme movements,"
2013-028, Department of Research, Ipag Business School.
- Marc Joëts, 2012. "Energy price transmissions during extreme movements," EconomiX Working Papers 2012-38, University of Paris West - Nanterre la Défense, EconomiX.
- repec:ipg:wpaper:28 is not listed on IDEAS
- Cao, Guangxi & Cao, Jie & Xu, Longbing & He, LingYun, 2014. "Detrended cross-correlation analysis approach for assessing asymmetric multifractal detrended cross-correlations and their application to the Chinese financial market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 393(C), pages 460-469.
- Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2011. "The instability of the correlation structure of the S&P 500," MPRA Paper 34160, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.