High and Low Frequency Correlations in Global Equity Markets

Posted: 9 Feb 2011

See all articles by Robert F. Engle

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Jose Gonzalo Rangel

Goldman Sachs Group, Inc. - Global Investment Research

Date Written: March 25, 2009

Abstract

We model high and low frequency variation in global equity correlations using a sample of 43 countries, including developed and emerging markets during the period 1995-2008. Such variations are characterized by a multifactor asset pricing structure with second-moments dynamics leading to high frequency correlations that mean revert toward the smooth low frequency ones. We correct for non-synchronous biases from using international returns at high frequencies. We find that global correlations showed a remarkable increase during the recent financial turmoil, but the effect was uneven across countries. Those that experienced higher growth rates in both correlation components were mainly emerging markets

Keywords: Factor-Spline-GARCH, Multiple factors, International correlations, Non-synchronous trading

JEL Classification: C32, C51, C52, G12, G15

Suggested Citation

Engle, Robert F. and Rangel, Jose Gonzalo, High and Low Frequency Correlations in Global Equity Markets (March 25, 2009). Available at SSRN: https://ssrn.com/abstract=1758106 or http://dx.doi.org/10.2139/ssrn.1758106

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jose Gonzalo Rangel (Contact Author)

Goldman Sachs Group, Inc. - Global Investment Research ( email )

200 West Street
New York, NY 10280
United States

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