Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/25367
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Time-varying correlations and interrelations: Firm-level-based sector evidence
Authors: Evans, Pornsawan
McMillan, David
McMillan, Fiona
Contact Email: david.mcmillan@stir.ac.uk
Keywords: stock markets
correlations
firm-level
sectors
time-varying
Issue Date: May-2017
Citation: Evans P, McMillan D & McMillan F (2017) Time-varying correlations and interrelations: Firm-level-based sector evidence, Journal of Asset Management, 18 (3), pp. 209-221.
Abstract: Using firm-level data, we examine stock market correlations and interrelations for the G7 over the period 2000–2013. An examination using aggregate market data supports the view that correlations have risen and particularly so during crisis periods. Using firm-level data, which is tradeable, we establish sector portfolios. We consider three regression approaches. The results support, first, that correlations using firm data are lower than those observed using aggregate market index data. Second, the most important driver for home sector returns is the home market followed by the corresponding US sector. Third, correlations rose during the crisis but have stabilised and even fallen since. This supports the view that markets fall together but rise apart. Fourth, there is evidence that most sector correlations follow a market-wide component, but some sector correlations follow their own component. Subsequently, we examine the key drivers of time-varying correlations. We find that the market-wide component of correlations increases in a US bear market as well as with higher US market volatility and lower US interest rates. However, on a sector basis, there are notable exceptions with some correlations falling in a bear market. Together, these results support the view that diversification benefits remain across market sectors.
DOI Link: http://dx.doi.org/10.1057/s41260-016-0034-3
Rights: This item has been embargoed for a period. During the embargo please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study. Accepted for publication in Journal of Asset Management. The final publication is available at Springer via https://doi.org/10.1057/s41260-016-0034-3

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