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|
|Date of revision:|
|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
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.:
- Ang, Andrew & Bekaert, Geert, 2002.
"Regime Switches in Interest Rates,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(2), pages 163-82, April.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- 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.
When requesting a correction, please mention this item's handle: RePEc:cdl:anderf:qt6vn9q79w. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)
If references are entirely missing, you can add them using this form.