Realized EquiCorrelation: a bird's-eye view of financial stress on equity markets

Sofiane Aboura and Julien Chevallier

Applied Economics, 2015, vol. 47, issue 47, 5013-5033

Abstract: This article addresses the issue of measuring the level of aggregate financial stress on stock markets, which is a central issue for investors and policy-makers. To this end, Realized EquiCorrelation (REC) is obtained by plugging realized volatility as an input into the Dynamic EquiCorrelation (DECO) model where both the continuous and jump components of realized volatility are considered. An application is provided for the 20 major stock markets over January 2000-May 2014 using intra-day data. The results remarkably pick up financial stress periods.

Date: 2015
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DOI: 10.1080/00036846.2015.1042139

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