Abstract

http://ssrn.com/abstract=219495
 
 

References (58)



 
 

Citations (208)



 
 

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Asymmetric Correlations of Equity Portfolios


Joseph Chen


University of California, Davis - Graduate School of Management

Andrew Ang


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

April 4, 2001

EFA 2001 Barcelona Meetings

Abstract:     
Correlations between US stocks and the aggregate US market are much greater for downside moves, especially for extreme downside moves, than for upside moves. We develop a new statistic for measuring, comparing and testing asymmetries in conditional correlations. Conditional on the downside, correlations in the data differ from the conditional correlations implied by a normal distribution by 11.6%. We find that conditional asymmetric correlations are fundamentally different from other measures of asymmetry like skewness and co-skewness. We find that small stocks, value stocks and past loser stocks have more asymmetric movements. Controlling for size, we find that stocks with lower betas exhibit greater correlation asymmetries and we find no relationship between leverage and correlation asymmetries. Correlation asymmetries in the data reject the null of multivariate normal distributions at daily, weekly and monthly frequencies. However, several empirical models with greater flexibility, particularly regime-switching models, perform much better at capturing correlation asymmetries.

Number of Pages in PDF File: 56

JEL Classification: G12

working papers series


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Date posted: May 19, 2000  

Suggested Citation

Chen, Joseph and Ang, Andrew, Asymmetric Correlations of Equity Portfolios (April 4, 2001). EFA 2001 Barcelona Meetings. Available at SSRN: http://ssrn.com/abstract=219495 or http://dx.doi.org/10.2139/ssrn.219495

Contact Information

Joseph S. Chen (Contact Author)
University of California, Davis - Graduate School of Management ( email )
One Shields Avenue
Davis, CA 95616
United States
(530) 752-7155 (Phone)
(530) 752-2924 (Fax)
Andrew Ang
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  58
Citations:  208
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