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- Title
Global Equity Correlation in International Markets.
- Authors
Bae, Joon Woo; Elkamhi, Redouane
- Abstract
We present empirical evidence that the innovation in global equity correlation is a viable pricing factor in international markets. We develop a stylized model to motivate why this is a reasonable candidate factor and propose a simple way to measure it. We find that our factor has a robust negative price of risk and significantly improves the joint cross-sectional fits across various asset classes, including global equities, commodities, sovereign bonds, foreign exchange rates, and options. In exploring the pricing ability of our factor on the FX market, we also shed light on the link between international equity and currency markets through global equity correlations as an instrument for aggregate risks. This paper was accepted by Karl Diether, finance.
- Subjects
INTERNATIONAL markets; EXPORT marketing; GOVERNMENT securities; STOCK exchanges; FOREIGN exchange market
- Publication
Management Science, 2021, Vol 67, Issue 11, p7262
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.2020.3780