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Working Papers (1997), ESSEC Business School

Dependences Structure of International Equity Markets during Extremely Volatile Periods

Correlation in international equity returns is unstable over time. One of the sources of this instability may be a change in the correlation structure during volative periods: correlation rises in periods of high volatility and declines in periods of low volatility. The level of correlation may also depend on the market trend: correlation is higher during bear market than during bull markets. This paper studies the dependence structure of three international markets (the United States, the United Kingdom and Japan) during extremely volatile periods. It considers both the size and the timing of large price movements in a formalized framework using extreme value theory.

LONGIN, F. and SOLNIK, B. (1997). Dependences Structure of International Equity Markets during Extremely Volatile Periods. ESSEC Business School.