Emory University - Department of Finance
University of Lausanne; Swiss Finance Institute
Singapore Management University - School of Business
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, G14working papers series
Date posted: March 15, 2011 ; Last revised: August 19, 2011
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