Global Equity Correlation in International Markets

• 成果类型: Article
• 署名作者: Bae, Joon Woo; Elkamhi, Redouane
• 署名单位: University System of Ohio; Case Western Reserve University; University of Toronto
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3780
• 发表日期: 2021
• 页码: 7262-7289
• 关键词: Asset pricing; INVESTMENT; portfolio; Foreign exchange rate

摘要

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.