Pairwise Correlations

33 Pages Posted: 15 Mar 2011 Last revised: 14 Nov 2013

See all articles by Tarun Chordia

Tarun Chordia

Emory University - Department of Finance

Amit Goyal

University of Lausanne; Swiss Finance Institute

Qing Tong

Shanghai LiLi Technology Co.,Ltd.

Date Written: April 2011


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.

Keywords: Asymmetric Correlations, Downside correlations, Retail Investors

JEL Classification: G12, G14

Suggested Citation

Chordia, Tarun and Goyal, Amit and Tong, Qing, Pairwise Correlations (April 2011). Available at SSRN: or

Tarun Chordia (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)

Amit Goyal

University of Lausanne ( email )

Batiment Extranef 226
Lausanne, Vaud CH-1015
+41 21 692 3676 (Phone)
+41 21 692 3435 (Fax)


Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Qing Tong

Shanghai LiLi Technology Co.,Ltd. ( email )

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