Download or read book Covariance and Correlation in International Equity Returns written by Rachel A.J. Pownall and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Benefits to portfolio diversification depend crucially on correct correlation estimates, hence it is of great importance to both risk management and portfolio optimisation that the exact nature of the correlation structure between international financial assets is understood. Recent discussion on the correlation of international equity returns has focussed on the issue of whether extreme movements in international financial markets are more highly correlated than usual returns. This implies a reduction in the benefits from portfolio diversification since extreme returns are more likely to occur with greater simultaneity. Using the Value-at-Risk methodology we are able to measure the quantile correlation structure implicit in international asset returns in a simple manner without having to resort to fully parametric modelling. We illustrate that the extraction of the quantile covariance structure from this quantile correlation structure is non-trivial. Using daily data on stock market indices for a variety of countries we observe how the correlation and covariance structure changes as we move into the tails of the return distribution. We find for extreme stock market movements the benefits to international diversification are significantly curtailed even after discarding spurious correlation changes.
Download or read book Extreme Correlation of International Equity Markets written by François M. Longin and published by . This book was released on 2000 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Co Movements in International Equity Markets written by Salim M. Darbar and published by . This book was released on 1997 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the co-movements of equity returns in four major international markets by characterizing the time-varying cross-country covariances and correlations. Using a generalized positive definite multivariate GARCH model, we find that the Japanese and U.S. stock markets have significant transitory covariance, but zero permanent covariance. The other pairs of markets examined display significant permanent and transitory covariance. We also find that, while conditional correlations between returns are generally small, they change considerably over time. An event analysis suggests that basing diversification strategies on these conditional correlations is potentially beneficial.
Download or read book Asymmetric Effects of Return and Volatility on Correlation between International Equity Markets written by Abderrahim Taamouti and published by . This book was released on 2009 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: How the correlation between equity returns behaves during market turmoils has been an issue of discussion in the international finance literature. Some research suggest an increase of correlation during volatile periods [Ang and Bekaert, 2002], while others argue its stability [Forbes and Rigobon, 2002]. In this paper, we study the impact of returns and volatility on correlation between international equity markets. Our objective is to determine if there is any asymmetry in correlation and identify the main explanation for this asymmetry. Within a framework of autoregressive models we quantify the relationship between return, volatility, and correlation using the generalized impulse response function and we test for the asymmetries in the return-correlation and volatility-correlation relationships. We also examine the implications of these asymmetric effects for the optimal international portfolio. Empirical evidence using weekly data on US, Canada, UK, and France equity indices, show that without taking into account the effect of return, there is an asymmetric impact of volatility on correlation. The volatility seems to have more impact on correlation during market upturn periods than during downturn periods. However, once we introduce the effect of return, the asymmetric impact of volatility on correlation disappears. These observations suggest that, the relation between volatility and correlation is an association rather than a causality. The strong increase in the correlation is driven by the market direction and the level of return rather than the level of the volatility. These results are confirmed using some tests of the asymmetry in volatility-correlation and return-correlation relationships in separate models and then in a joint model. Finally, we find that taking into account the asymmetric effect of return on correlation leads to an average financial gain ranged between 3.35 and 37.25 basis points for optimal international diversification.
Download or read book International Stock Return Comovements written by Geert Bekaert and published by . This book was released on 2006 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine international stock return comovements using country-industry and country-style portfolios. We first establish that parsimonious risk-based factor models capture the covariance structure of the data better than the popular Heston-Rouwenhorst (1994) model. We then establish the following stylized facts regarding stock return comovements. First, we do not find evidence for an upward trend in return correlations, excpet for the European stock markets. Second, the increasing imporatnce of industry factors relative to country factors was a short-lived, temporary phenomenon. Third, we find no evidence for a trend in idiosyncratic risk in any of the countries we examine.
Download or read book The Internationalization of Equity Markets written by Jeffrey A. Frankel and published by University of Chicago Press. This book was released on 2008-04-15 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: This timely volume addresses three important recent trends in the internationalization of United States equity markets: extensive market integration through foreign investment and links among stock prices around the world; increasing securitization as countries such as Japan come to rely more than ever before on markets in equities and bonds at the expense of banks; and the opening of national financial systems of newly industrializing countries to international financial flows and institutions, as governments remove capital controls and other barriers. Eight essays examine such issues as the current extent of international market integration, gains to U.S. investors through international diversification, home-country bias in investing, the role of time and location around the world in stock trading, and the behavior of country funds. Other, long-standing questions about equity markets are also addressed, including market efficiency and the accuracy of models of expected returns, with a particular focus on variances, covariances, and the price of risk according to the Capital Asset Pricing Model.
Download or read book Extreme Correlation of International Equity Markets written by Francois M. Longin and published by . This book was released on 2017 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Testing the hypothesis that international equity market correlation increases in volatile times is a difficult exercise and misleading results have often been reported in the past because of a spurious relationship between correlation and volatility. This paper focuses on extreme correlation, that is to say the correlation between returns in either the negative or positive tail of the multivariate distribution. Using ldquo;extreme value theoryrdquo; to model the multivariate distribution tails, we derive the distribution of extreme correlation for a wide class of return distributions. Using monthly data on the five largest stock markets from 1958 to 1996, we reject the null hypothesis of multivariate normality for the negative tail, but not for the positive tail. We also find that correlation is not related to market volatility per se but to the market trend. Correlation increases in bear markets, but not in bull markets.
Download or read book Conditional Correlation in International Equity Returns written by François Longin and published by . This book was released on 1992 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Résumé en anglais.
Download or read book Testing Constancy of Correlation with an Application to International Equity Returns written by Anil K. Bera and published by . This book was released on 1996 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Is the Correlation in International Equity Returns Constant 1960 90 written by François Longin and published by . This book was released on 1993 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Returns Synchronization and Daily Correlation Dynamics between International Stock Markets written by Martin Martens and published by . This book was released on 1999 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: The use of close-to-close returns underestimates returns correlation because international stock markets have different trading hours. With the availability of 16:00 (London time) stock market series, we find dynamics of daily correlation and daily covariance, estimated using two non-synchroneity adjustment procedures, to be substantially different from their synchronous counterparts. We find volatility spillovers from the US to the UK and France, and there is also evidence of reverse spillovers which is not documented before. Daily covariance increases during volatile periods. But, unlike previous findings, the increase in daily correlation is prominent only under extremely adverse conditions when a large negative return has been registered.
Download or read book Comovement in International Equity Markets written by W. Jos Jansen and published by . This book was released on 2011 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate shifts in correlation patterns among international equity returns at the market level as well as the industry level. We develop a novel bivariate GARCH model for equity returns with a smoothly time-varying correlation and then derive a Lagrange Multiplier statistic to test the constant-correlation hypothesis directly. Applying the test to weekly data from Germany, Japan, the UK and the US in the period 1980-2000, we find that correlations among the German, UK and US stock markets have doubled, whereas Japanese correlations have remained the same. Both dates of change and speeds of adjustment vary widely across countries and sectors.
Download or read book International Portfolio Diversification written by Peh San Zee and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Correlation and Volatility Asymmetries in International Equity Markets written by CFA O'Toole (Randy) and published by . This book was released on 2013 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: The co-movement of international equity markets in different return environments is examined using estimates of realized correlation and volatility. Using a simple ordinary least squares (OLS) regression framework, correlations are shown to be similarly elevated in periods characterized by extreme returns in both up and down markets, which contradicts a body of extant research that finds correlations increase in down markets but not in up markets. In contrast, volatility is much greater in down markets than in up markets. This suggests that it is not a lack of diversification that matters for comparative performance in bear markets, but rather the relative magnitude of negative returns typically experienced during such periods.
Download or read book The Rationale of the International Equity Return Correlation Structure written by Patrick Wegmann and published by . This book was released on 2001 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Correlation in international stock market returns is unstable over time. It is empirically shown that for most markets the correlation of negative returns exceeds that for positive returns. With rational consumption based asset pricing, any comovement behavior of asset returns must be linked somehow to the correlation pattern of international consumption streams. The extent of this linkage depends on the degree of market integration. In this paper, I adapt the general equilibrium model of asset pricing by Campbell and Cochrane (1999) to the international context and calibrate the degree of market integration to reproduce the level of international stock market correlations for the countries Canada, France, Germany, UK, and US. The paper then shows how far a purely rational explanation of higher correlations in down-markets can go. It turns out that the model's internal dynamics is not able to produce higher correlations in down-market phases with i.i.d multivariate normal consumption increments. Thus, the empirical behavior must be caused by characteristics of consumption data alone. A historical simulation shows that there is indeed a dependence structure in consumption data supporting this increase in correlation but that there is still room left for alternative explanations like a time-varying degree of market integration.
Download or read book Excess Stock Return Comovements and the Role of Investor Sentiment written by Bart Frijns and published by . This book was released on 2017 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates whether investor sentiment can explain stock return comovements. Our findings demonstrate that since the 1960s, there has been a clear and rapid increase in correlations between international equity markets. Decomposing the equity returns into fundamental and non-fundamental components reveals that the increased correlation is driven by the non-fundamental part. We find that stock return comovements are mainly driven by investor sentiment, which explains the level, variance, and covariance of the non-fundamental component of returns.
Download or read book Correlation of International Stock Returns and the Benefits from Diversification written by Chue Timothy K. and published by . This book was released on 2000 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
