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Economic Factors Contributing to Time-Varying Conditional Correlations in Stock Returns

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  • Nagayasu, Jun

Abstract

This paper attempts to find economic and financial factors contributing to the changing correlations of stock returns. Time-varying correlations were documented in previous studies, but a few attempts have been made to investigate their evolution. Using daily data from the Asia-Pacific region, this paper provides evidence that return correlations are negatively correlated with the distance between the markets. Furthermore, correlations tend to be higher in advanced countries and increase at times of the active trading (e.g., around the Lehman shock). Instead, the level of correlations declines among pairs of countries with less financial integration.

Suggested Citation

  • Nagayasu, Jun, 2010. "Economic Factors Contributing to Time-Varying Conditional Correlations in Stock Returns," MPRA Paper 28391, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:28391
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    References listed on IDEAS

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    More about this item

    Keywords

    Conditional correlations; DCC;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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