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Emerging Markets and the Global Economy by Duc Khuong Nguyen, Sabri Boubaker, Mohammed Hedi Arouri

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Chapter 24

On the Importance of Trend Gaps in Assessing Equity Market Correlations

Jarkko Peltomäki and Michael Graham,    Stockholm University, School of Business, Sweden,    E-mail: jape@fek.su.se, mgr@fek.su.se

Abstract

In this chapter, we take the practical approach to measure equity market correlations and propose the use of trends gaps to assess diversification benefit in global equity markets. We suggest that one should consider the prevalence of market trends to gauge the state of global stock market correlations. This is important in assessing the benefits of international diversification. The idea of our approach is that the states indicated by the prevalence can be used when assessing the benefits of international diversification. ...

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