Abstract

http://ssrn.com/abstract=2425676
 


 



Increased Correlation Among Asset Classes: Are Volatility or Jumps to Blame, or Both?


Yacine Ait-Sahalia


Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Dacheng Xiu


University of Chicago - Booth School of Business

April 1, 2014

Chicago Booth Research Paper No. 14-11
Fama-Miller Working Paper

Abstract:     
We develop estimators and asymptotic theory to decompose the quadratic covariation between two assets into its continuous and jump components, in a manner that is robust to the presence of market microstructure noise. Using high frequency data on different assets classes, we find that the recent financial crisis led to an increase in both the quadratic variations of the assets and their correlations. However, we find little evidence to suggest a change between the relative contributions of the Brownian and jump components, as both comove. Co-jumps stem from surprising news announcements that occur primarily before the opening of the U.S. market, and are also accompanied by an increase in Brownian-driven correlations.

Number of Pages in PDF File: 39

Keywords: Quadratic covariation, continuous and jump components, overnight jumps, news surprises, financial crisis

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Date posted: April 16, 2014  

Suggested Citation

Ait-Sahalia, Yacine and Xiu, Dacheng, Increased Correlation Among Asset Classes: Are Volatility or Jumps to Blame, or Both? (April 1, 2014). Chicago Booth Research Paper No. 14-11; Fama-Miller Working Paper . Available at SSRN: http://ssrn.com/abstract=2425676 or http://dx.doi.org/10.2139/ssrn.2425676

Contact Information

Yacine Ait-Sahalia
Princeton University - Department of Economics ( email )
Fisher Hall
Princeton, NJ 08544
United States
609-258-4015 (Phone)
609-258-5398 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Dacheng Xiu (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
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