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Systematic Correlation is Priced as Risk Factor

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  • Xiangying Meng
  • Xianhua Wei

Abstract

In this study, we first measure the systematic correlation level risk and systematic correlation shock risk based on mixed vine copula method and investigate their relationship with stock return. The empirical result shows that correlation is significantly and negatively priced as risk factor in China which is dynamic through different regimes. We find out that transformation mechanism between idiosyncratic correlation and systematic correlation is supported at stock-level and index-level.JEL Classification: G11; G12Keywords: systematic correlation risk; MacBeth regression; regime-switching; correlation transformation

Suggested Citation

  • Xiangying Meng & Xianhua Wei, 2018. "Systematic Correlation is Priced as Risk Factor," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(6), pages 1-2.
    • Handle: RePEc:spt:apfiba:v:8:y:2018:i:6:f:8_6_2
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    References listed on IDEAS

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    More about this item

    Keywords

    systematic correlation risk; macbeth regression; regime-switching; â correlation transformation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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