Correlation Dynamics of Global Industry Portfolios
59 Pages Posted: 16 Mar 2004
Date Written: March 2004
This paper uses within-month daily returns to measure realized correlation between global industry portfolios and the aggregate world market. Over the period from 1979 to 2003, there has been a noticeable increase in the correlation of high size industries relative to low size industries. Industry correlations are greater for downside moves than for upside moves. Moreover, industry correlations are greater for high volatility states, especially for upside moves, than for low volatility states. Industries with low market capitalization, volume, turnover, and liquidity have lower correlations and more asymmetric movements. Low price earnings ratio industries also have lower correlation, but less asymmetric movements.
Keywords: Correlation, global industry portfolios, asymmetries, trends
JEL Classification: G11, G15, F30
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