Title
Unraveling historic correlation Unraveling historic correlation
Author
Faculty/Department
Faculty of Applied Economics
Publication type
article
Publication
Bruxelles ,
Subject
Economics
Source (journal)
Revue bancaire et financière. - Bruxelles, 2003, currens
Volume/pages
5(2009) , p. 336-338
ISSN
2033-7825
Carrier
E
Target language
English (eng)
Abstract
Correlations play an important role in many areas of finance. Unlike other financial variables correlation can hardly be implied from market prices. Most applications hence extract correlation estimates from historical data. This note illustrates how recent market events have impacted such estimates. The calculations and results are simple but point out some crucial features. First, correlations have considerably increased in recent markets and are likely to increase even further. And second, recent events seem to undermine the distributional assumptions underlying models used to price and assess the risk of financial assets.