A new online-test for changes in correlations between assets
Date
2010-08-23
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Abstract
We apply a new test to determine whether correlations between assets are constant
over time. The test statistic is a suitably standardized maximum of cumulative empirical
correlation coefficients. An empirical application to various assets suggests that the test performs well in applications. We also propose a portfolio strategy based on our test which hedges against potential financial crises and show that it works in practice. JEL Classification: C12, C14, G01, G11
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Keywords
Correlation, Econometric modeling, Finance, Portfolio optimization