Premium
Differing investor perspectives: Revisiting contagion under perspective correlations
Author(s) -
Karol Anjali
Publication year - 2021
Publication title -
journal of public affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.221
H-Index - 20
eISSN - 1479-1854
pISSN - 1472-3891
DOI - 10.1002/pa.2167
Subject(s) - converse , diversification (marketing strategy) , currency , economics , financial economics , correlation , perspective (graphical) , econometrics , negative correlation , index (typography) , monetary economics , business , mathematics , geometry , medicine , marketing , world wide web , computer science
This paper introduces a new correlation measure called perspective correlation measure as a complement to the existing objective correlation measure to detect contagion. Incorporating the effects of currency returns on correlation estimates, we first demonstrate theoretically that the correlation experienced by two investors given a country pair can be different. This is because the correlation measures are inherently distinctive, determined purely from the point of view of the investor, the foreign exchange returns between the two countries for the investment period and the currency in which the investor counts his or her returns. The same has been evidenced from an empirical examination of weekly closing stock index returns data from January 1996 to December 2017 for India and its three developed counterparts, namely, the US, the UK and Japan. Our results indicate that India does not offer diversification benefits to developed country investors but the converse is true.