Correlation of Returns in Non-Contemporaneous Markets

Kahya, Emel

Volume 1, Number 2 / June , Pages 93-168

Multinational Finance Journal, 1997, vol. 1, no. 2, pp. 123-135

Emel Kahya , Rutgers University, U.S.A. Corresponding Author

Abstract:
This article investigates the effects of non-overlapping trading hours on the correlations and cross-serial correlations of returns in non-contemporaneous stock markets and develops a simple formula for calculating contemporaneous correlation measures. The presence of these effects is illustrated empirically using stock market returns data for the U.S., Japan, and the U.K. The results indicate that daily correlations of returns in these markets are biased downward while daily cross-serial correlations of returns are biased upwards. These findings have significant implications for studies investigating the transmission mechanism of stock price innovations across national stock markets and portfolio management.

Keywords : mean spillovers; contemporaneous correlations of returns
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