The change of correlation structure across industries:an analysis in the regime-switching framework

Masahiko Egami, Yuki Shigeta and Katsutoshi Wakai

Discussion papers from Graduate School of Economics Project Center, Kyoto University

Abstract: This paper studies changes of correlation structure across industries in the United States equities market in the regime-switching framework. To capture the irreversible structural change and to separate it from the recurring boomingrecession switches, we introduce two Markov chains. We empirically identify the timing of the structural change and confirm that, after the change, the asset return correlations across industries increased. Moreover, the impact of the structural change on correlations is stronger in a recession period than in a booming period.

JEL-codes: C22 G10 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014-04
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Persistent link: https://EconPapers.repec.org/RePEc:kue:dpaper:e-14-002

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