Asymmetric Correlations of Equity Portfolios

EFA 2001 Barcelona Meetings

56 Pages Posted: 19 May 2000

See all articles by Joseph Chen

Joseph Chen

University of California, Davis - Graduate School of Management

Andrew Ang

BlackRock, Inc

Date Written: April 4, 2001


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.

JEL Classification: G12

Suggested Citation

Chen, Joseph S. and Ang, Andrew, Asymmetric Correlations of Equity Portfolios (April 4, 2001). EFA 2001 Barcelona Meetings, Available at SSRN: or

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

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

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