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Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Cross-Asset Relations, Correlations and Economic Implications
Author(s): McMillan, David G
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Keywords: Time-Varying Correlations, Cross-Asset, Rolling Windows, Markov Switching,
Macroeconomic, Prediction
JEL Codes: C22, G12
Issue Date: Aug-2019
Date Deposited: 26-Feb-2019
Citation: Mcmillan DG (2019) Cross-Asset Relations, Correlations and Economic Implications. Global Finance Journal, 41, pp. 60-78.
Abstract: This paper examines the interrelations and time-varying correlations for eight assets. One-year rolling correlations reveal that each of the 28 correlations exhibit both positive and negative values. Linear regressions reveal that given macroeconomic and financial variables contain predictive power for different asset return correlations. The term structure of interest rates and consumer sentiment feature as prominent predictor variables. Structural break tests and non-linear regressions indicate a cycling of correlations between high and low risk periods. In seeking to consider the economic content of the interrelations, we construct a safe and risky portfolio and show that the correlation between these portfolios can allow for improved market timing. Further, the safe and risky portfolio returns and correlation exhibit predictive power for macroeconomic conditions and may be used in a leading indicator role. The results presented here should be of interest to investors and policy-makers as well as academics wishing to examine the relations between both asset returns and financial and real markets.
DOI Link: 10.1016/j.gfj.2019.02.003
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 refereed manuscript of: Mcmillan DG (2019) Cross-Asset Relations, Correlations and Economic Implications. Global Finance Journal, 41, pp. 60-78. DOI: © 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International
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