ICEF/LFE Research Seminar by Per Ostberg (University of Zurich)

On Thursday, December 3 at 4.40 pm ICEF and LFE held the Research Seminar in Finance.
Speaker: Per Ostberg (University of Zurich)
Theme: "Correlations in Equity Markets: Trading, Liquidity, and Uncertainty"

Abstract: We estimate equity market return correlations for a large cross-section of U.S. equities using high-frequency trade data. We relate our correlation estimates to motives for investor rebalancing. General proxies for rebalancing such as trading volume and negative returns (wealth effect) are associated with higher correlations. Additionally, liquidity pull-back as a result of tight interbank markets leads to an increase in equity market correlations. We find mixed evidence in favor of the effect of uncertainty on correlations. Overall, the paper finds strong evidence in favor of rebalancing motives explaining variation in correlations. 

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