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Calibration of factor models with equity data: parade of correlations

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  • Baranovski, Alexander L.

Abstract

This paper describes the process of ML-estimating of the equity correlations which can be used as proxies for asset correlations. In a Gaussian framework the ML-estimators are given in closed form. On this basis the impact of the Lehman’s collapse on the dynamics of correlations is investigated: after the Lehman failure in September 2008 the rise in correlations took place across all economic sectors.

Suggested Citation

  • Baranovski, Alexander L., 2012. "Calibration of factor models with equity data: parade of correlations," MPRA Paper 36300, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:36300
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    File URL: https://mpra.ub.uni-muenchen.de/36300/1/MPRA_paper_36300.pdf
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    References listed on IDEAS

    as
    1. Huseyin Kalyoncu, 2005. "Sustainability of Current Account for Turkey: Intertemporal Solvency Approach," Prague Economic Papers, University of Economics, Prague, vol. 2005(1), pages 82-88.
    2. Baharumshah, Ahmad Zubaidi & Lau, Evan, 2005. "Current Account Deficit Sustainability: a Panel Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 514-529.
    3. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-445, July.
    4. Husted, Steven, 1992. "The Emerging U.S. Current Account Deficit in the 1980s: A Cointegration Analysis," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 159-166, February.
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    More about this item

    Keywords

    intra/inter asset correlations; maximum likelihood estimation; single risk factor model; normal mixture; VAR of equity portfolio;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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