The Impact of Large Changes in Asset Prices on Intra-Market Correlations in the Domestic and International Markets
40 Pages Posted: 20 Dec 2000
There are 3 versions of this paper
The Impact of Large Changes in Asset Prices on Intra-Market Correlations in the Domestic and International Markets
The Impact of Large Changes in Asset Prices on Intra-Market Correlations in the Domestic and International Markets
The Impact of Large Changes in Asset Prices on Intra-Market Correlations in the Domestic and International Markets
Date Written: September 18, 2000
Abstract
This paper considers the impact and implications of "large" changes in asset prices on the intra-market correlations in the domestic and international markets. Assuming that asset returns are normally-distributed, we show that the absolute magnitude of the correlation, conditional on a change greater than or equal to a given absolute size in one of the variables, is monotonically increasing in the magnitude of that absolute change. We present empirical tests using domestic and international-market data that support this theoretical result. These results have significant implications for hedging interest rate risk, tests of asset pricing models, Roll's R 2 concern with the explanatory power of financial asset pricing models, and the implementation of the value-at-risk concept.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Modeling and Forecasting Realized Volatility
By Torben G. Andersen, Tim Bollerslev, ...
-
Modeling and Forecasting Realized Volatility
By Torben G. Andersen, Tim Bollerslev, ...
-
The Distribution of Realized Exchange Rate Volatility
By Torben G. Andersen, Tim Bollerslev, ...
-
The Distribution of Exchange Rate Volatility
By Torben G. Andersen, Tim Bollerslev, ...
-
The Distribution of Exchange Rate Volatility
By Torben G. Andersen, Tim Bollerslev, ...
-
The Distribution of Stock Return Volatility
By Torben G. Andersen, Tim Bollerslev, ...
-
By Torben G. Andersen, Tim Bollerslev, ...
-
Range-Based Estimation of Stochastic Volatility Models
By Sassan Alizadeh, Michael W. Brandt, ...
-
By Torben G. Andersen, Tim Bollerslev, ...
-
By Torben G. Andersen, Tim Bollerslev, ...
