Footnote:
In: Journal of Business and Economic Statistics, Vol. 30, No. 1, pp. 109-124, 2012
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 31, 2011 erstellt
Description:
We propose a new approach to model high- and low-frequency components of equity correlations. Our framework combines a factor asset pricing structure with other specifications capturing dynamic properties of volatilities and covariances between a single common factor and idiosyncratic returns. High-frequency correlations mean revert to slowly varying functions that characterize long-term correlation patterns. We associate such term behavior with low-frequency economic variables, including determinants of market and idiosyncratic volatilities. Flexibility in the time-varying level of mean reversion improves both the empirical fit of equity correlations in the U.S. and correlation forecasts at long horizons