Sector diversification during crises: a European perspective
AbstractThe dynamics of the cross-correlations between the 10 Dow Jones European sector financial indices are analyzed through to the Dynamic Conditional Correlations (DCC) model during the period 1987-2003. First, the paper confirms that, on the whole, the correlations are highly volatile. Second, it brings insights on the behavior of the sector correlations during the IT bubble. The comparison of the pre- and post-bubble periods leads to the conclusion that the sector indices do not suffer from the contagion effects (a correlation increase damaging the portfolio diversification) observed by several authors on country indices. Therefore, it is argued that the benefits from sector diversification during crises must be taken into account by portfolio managers.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series DULBEA Working Papers with number 06-07.RS.
Length: 31 p.
Date of creation: 2006
Date of revision:
Publication status: Published by: DULBEA - Université Libre de Bruxelles, Department of Applied Economics
dynamic correlation; sector diversification; IT bubble; contagion;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-27 (All new papers)
- NEP-EEC-2006-05-27 (European Economics)
- NEP-FIN-2006-05-27 (Finance)
- NEP-FMK-2006-05-27 (Financial Markets)
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