Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83767
Authors: 
Engle, Robert
Rangel, José Gonzalo
Year of Publication: 
2009
Series/Report no.: 
Working Papers, Banco de México 2009-17
Abstract: 
This study models high and low frequency variation in global equity correlations using a comprehensive sample of 43 countries that includes developed and emerging markets, during the period 1995-2008. These two types of variations are modeled following the semi-parametric Factor-Spline-GARCH approach of Rangel and Engle (2008). This framework is extended and modified to incorporate the effect of multiple factors and to address the issue of non-synchronicity in international markets. Our empirical analysis suggests that the slow-moving dynamics of global correlations can be described by the Factor-Spline-GARCH specifications using either weekly or daily data. The analysis shows that the low frequency component of global correlations increased in the current financial turmoil; however, this increase was not equally distributed across countries. The countries that experienced the largest increase in correlations were mainly emerging markets.
Subjects: 
dynamic conditional correlations
high and low frequency variation
global markets
non-synchronicity
JEL: 
C32
C51
C52
G12
G15
Document Type: 
Working Paper
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