An equicorrelation measure for equity, bond, foreign exchange and commodity returns

Sofiane Aboura and Julien Chevallier

Applied Economics Letters, 2013, vol. 20, issue 18, 1618-1624

Abstract: This article provides the first empirical application of the dynamic equicorrelation (DECO) model to a cross-market data set composed of equities, bonds, foreign exchange and commodity returns during 1983--2013. The results reveal that the average cross-market equicorrelation is around 47%, although it is found to be time-varying and mean-reverting. Besides, we display the equicorrelation across markets as a natural way of looking at the DECO dynamics, which overcomes the cumbersome estimation difficulties encountered with multivariate GARCH models. Implications are derived in terms of asset management.

Date: 2013
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DOI: 10.1080/13504851.2013.829192

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