Is Average Correlation Related to Expected Returns: Evidence From Global Markets

12 Pages Posted: 19 Feb 2020

See all articles by Stanley Peterburgsky

Stanley Peterburgsky

CUNY Brooklyn College

Seungho Baek

City University of New York - Department of Finance

Date Written: September 22, 2019

Abstract

We examine whether average country-level stock market correlation is related to global equity returns. Previous research focusing on the U.S. suggests that average firm-level correlation captures some of the risk not accounted for by other variables and is positively related to returns on the broad stock market. In contrast, we find that average country-level correlation does not appear to be related to global returns, and that the Roll (1977) critique is not responsible for this lack of relation. Empirically, average correlation does not help forecast returns.

Keywords: average correlation, forecasting, predictability, Roll critique

JEL Classification: G11, G15

Suggested Citation

Peterburgsky, Stanley and Baek, Seungho, Is Average Correlation Related to Expected Returns: Evidence From Global Markets (September 22, 2019). Available at SSRN: https://ssrn.com/abstract=3524737 or http://dx.doi.org/10.2139/ssrn.3524737

Stanley Peterburgsky (Contact Author)

CUNY Brooklyn College ( email )

2900 Bedford Avenue
Brooklyn, NY 11210
United States

Seungho Baek

City University of New York - Department of Finance ( email )

2900 Bedford Avenue
Brooklyn, NY 11210
United States

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