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Pairwise Correlations
Tarun Chordia
Emory University - Department of Finance
Amit Goyal
University of Lausanne; Swiss Finance Institute
Qing Tong
Singapore Management University - School of Business
April 2011
Abstract:
Pairwise stock correlations increase by 27% on average when stock returns are negative. It is trading activity in small stocks that leads to higher correlations when returns are negative. We provide evidence consistent with the hypothesis that co-ordinated selling by retail investors drives this asymmetry in correlations. The co-ordinated selling activity by retail investors is triggered by negative market returns.
Number of Pages in PDF File: 33
Keywords: Asymmetric Correlations, Downside correlations, Retail Investors
JEL Classification: G12, G14
working papers series
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Date posted: March 15, 2011
; Last revised: August 19, 2011
Suggested CitationChordia, Tarun, Goyal, Amit and Tong, Qing, Pairwise Correlations (April 2011). Available at SSRN: http://ssrn.com/abstract=1785390 or http://dx.doi.org/10.2139/ssrn.1785390
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