Journal
JOURNAL OF EMPIRICAL FINANCE
Volume 15, Issue 2, Pages 287-309Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jempfin.2007.01.001
Keywords
exceedance correlation; truncated correlation; bivariate Student-t(r) correlation
Categories
Ask authors/readers for more resources
Increasing correlation during turbulent market conditions implies a reduction in portfolio diversification benefits. We investigate the robustness of recent empirical results that indicate a breakdown in the correlation structure by deriving theoretical truncated and exceedance correlations using alternative distributional assumptions. Analytical results show that the increase in conditional correlation could be a result of assuming conditional normality for the return distribution. When assuming a popular alternative distribution - the bivariate Student-t(r) - we find significantly less support for an increase in conditional correlation and conclude that this is due to the presence of fat tails when assuming normality in the return distribution. (C) 2007 Elsevier B.V. All rights reserved.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available