Covariance and correlation stationarity: Experiences from seven Asian emerging markets

Gordon Y N TANG*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

Because of the rising interest and the growing importance of the Asian emerging markets in international diversification, this paper examines the covariance and correlation stationarity in stock return relationships among seven Asian emerging markets. This paper also covers the issue of seasonality in stock return co-movements. Empirical results show that because the correlations among them and those with other developed markets are very small, huge gains from diversifying into the seven Asian emerging markets are possible. Results on stationarity indicate that correlation matrices of stock returns are much more stable then the corresponding variance-covariance matrices and that the length of the estimation period seems to have no impact on the stationarity of the correlation matrix. We also found that virtually no seasonality in the correlations exists among the seven Asian emerging markets. However, we did find that during our sample period covariance among stock returns is nonstationary in January.

Original languageEnglish
Pages (from-to)219-231
Number of pages13
JournalFinancial Engineering and the Japanese Markets
Volume2
Issue number3
DOIs
Publication statusPublished - Oct 1995

Scopus Subject Areas

  • Economics, Econometrics and Finance(all)

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