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Implied correlation from VaR

Author

Listed:
  • John Cotter
  • Franc{c}ois Longin

Abstract

Value at risk (VaR) is a risk measure that has been widely implemented by financial institutions. This paper measures the correlation among asset price changes implied from VaR calculation. Empirical results using US and UK equity indexes show that implied correlation is not constant but tends to be higher for events in the left tails (crashes) than in the right tails (booms).

Suggested Citation

  • John Cotter & Franc{c}ois Longin, 2011. "Implied correlation from VaR," Papers 1103.5655, arXiv.org.
    • Handle: RePEc:arx:papers:1103.5655
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    Cited by:

    1. Mittnik, Stefan, 2014. "VaR-implied tail-correlation matrices," Economics Letters, Elsevier, vol. 122(1), pages 69-73.
    2. Liu, Jinjing, 2023. "A novel downside beta and expected stock returns," International Review of Financial Analysis, Elsevier, vol. 85(C).
    3. Zhou, Xinmiao & Qian, Huanhuan & Pérez-Rodríguez, Jorge. V. & González López-Valcárcel, Beatriz, 2020. "Risk dependence and cointegration between pharmaceutical stock markets: The case of China and the USA," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).

    More about this item

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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