Abstract:
Drawing motivation from the 2007-2009 global financial crises, this paper looks to
further examine the potential time-variant nature of asset correlations. Specifically, high
frequency price data and its accompanying tools are utilized to examine the relationship
between asset correlations and market volatility. Through further analyses of this
relationship using linear regressions, this paper presents some significant results that
provide striking evidence for the time-variability of asset correlations. These findings
have crucial implications for portfolio managers as well as risk management
professionals alike, especially in the contest of diversification.
