Nikolay Gospodinov

Working Paper 2017-11
November 2017

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This paper documents and characterizes the time-varying structure of U.S. and international asset co-movements. Although some of the time variation could be genuine, the sampling uncertainty and time series properties of the series can distort significantly the underlying signal dynamics. We discuss examples that illustrate the pitfalls from drawing conclusions from local trends of asset prices. On a more constructive side, we find that the U.S. main asset classes and major international stock indices share a factor that is closely related to the business cycle. At even lower frequency, the common asset co-movement appears to be driven by demographic trends.

JEL classification: G13, G14, G17

Key words: cross-asset, within-asset and international asset co-movements, rolling correlation, time-variability, persistence, higher moments, risk factors, sampling frequency

This paper was prepared for the 22nd Annual Financial Markets Conference, "Managing Global Financial Risks: Shifting Sands and Shock Waves" (May 7–9, 2017). The author thanks Richard Crump, Paula Tkac, and Larry Wall for helpful comments and suggestions. The views expressed here are the author's and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author's responsibility.
Please address questions regarding content to Nikolay Gospodinov, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470,
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