Stochastic Correlation Across International Stock Markets
This paper examines the correlation across a number of international stock market indices. As correlation is not observable, we assume it to be a latent variable whose dynamics must be estimated using data on observables. To do so, we use Â¯ltering methods to extract stochastic correlation from returns data. We Â¯nd evidence that the estimated correlation structure is dynamically changing over time. We also investigate the link between stochastic correlation and volatility. In general, stochastic correlation tends to increase in response to higher volatility but the eÂ®ect is by no means consistent. These results have important implications for portfolio theory as well as risk management.
|Date of creation:||07 Jun 2000|
|Contact details of provider:|| Postal: 110 Westwood Plaza, Los Angeles, CA. 90095|
Web page: http://www.escholarship.org/repec/anderson_fin/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-182, April.
- Andrew Ang & Geert Bekaert, 1998. "Regime Switches in Interest Rates," NBER Working Papers 6508, National Bureau of Economic Research, Inc.
- Clifford A. Ball & Walter N. Torous, 1999. "The Stochastic Volatility of Short-Term Interest Rates: Some International Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 2339-2359, December. Full references (including those not matched with items on IDEAS)