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

Author

Listed:
  • Masahiko Egami
  • Yuki Shigeta
  • Katsutoshi Wakai

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.

Suggested Citation

  • Masahiko Egami & Yuki Shigeta & Katsutoshi Wakai, 2014. "The change of correlation structure across industries:an analysis in the regime-switching framework," Discussion papers e-14-002, Graduate School of Economics Project Center, Kyoto University.
    • Handle: RePEc:kue:dpaper:e-14-002
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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