Systematic volatility explains long term global correlations
A paper published by the Bank of Mexico in December shows that global correlations have a low frequency variation in the short run. However, a dominant effect of systematic volatility during the past two years has increased the aggregated long-term global correlation component substantially.
The paper models high and low frequency variation in global equity correlations using a sample of 43 countries that includes developed and emerging markets, during the period from 1995 to 2008.
The framework
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