Modelling Asymmetric Comovements of International Financial Markets: A Survey

Abstract:

Recent researches on financial markets suggest the notion of correlation asymmetry. The research began in securities and become the focus between spot and futures markets. A common finding underlines that correlations tend to be much greater on the downside than on the upside. Much effort has been done on improving the estimation of the correlation to show the implication on the effectivness of risk management.In this survey; we review some recent developments in correlation asymmetry. We describe the econometric implementation of the different methods proposed in the literature and sum up the finding about the implication of the asymmetric correlation on portfolio diversification and futures hedging.