Correlation Behavior of Emerging Markets

Abstract

Using a market model of international equity returns, which fully incorporates the regime switching and heteroskedasticity effects, we conduct an empirical study on the asymmetric behavior of 31 emerging equity markets across the different regimes of both the global and the local markets. Asymmetric correlation is found to be much weaker than that among developed markets as documented in the recent studies. There is little evidence of performance enhancement by possessing information on asymmetric correlation in international asset allocation strategies involving emerging markets.

Citation

Sherman Cheung, C. and Miu, P.C. (2011), "Correlation Behavior of Emerging Markets", Kensinger, J.W. (Ed.) Research in Finance (Research in Finance, Vol. 27), Emerald Group Publishing Limited, Leeds, pp. 283-310. https://doi.org/10.1108/S0196-3821(2011)0000027012