Sector diversification during crises: a European perspective
Michel Beine,
Pierre-Yves Preumont and
Ariane Szafarz
No 06-07.RS, DULBEA Working Papers from ULB -- Universite Libre de Bruxelles
Abstract:
The dynamics of the cross-correlations between the 10 Dow Jones European sector financial indices are analyzed through to the Dynamic Conditional Correlations (DCC) model during the period 1987-2003. First, the paper confirms that, on the whole, the correlations are highly volatile. Second, it brings insights on the behavior of the sector correlations during the IT bubble. The comparison of the pre- and post-bubble periods leads to the conclusion that the sector indices do not suffer from the contagion effects (a correlation increase damaging the portfolio diversification) observed by several authors on country indices. Therefore, it is argued that the benefits from sector diversification during crises must be taken into account by portfolio managers.
Keywords: dynamic correlation; sector diversification; IT bubble; contagion (search for similar items in EconPapers)
JEL-codes: C32 G11 G15 (search for similar items in EconPapers)
Pages: 31 p.
Date: 2006
New Economics Papers: this item is included in nep-eec, nep-fin and nep-fmk
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Citations: View citations in EconPapers (21)
Published by: DULBEA - Université Libre de Bruxelles, Department of Applied Economics
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