Jan 19, 2009
Have global correlations gone, effectively, to 1? Have cross-country and cross asset-class correlations behaved any differently this time than in previous downturns?

EFF/KRF: When market volatility goes up, cross-country and cross-asset-class correlations tend to go up. When market volatility is normal, events that are specific to countries, asset classes, or individual firms are a larger part of total volatility and correlations are low. When market volatility increases relative to other sources of volatility, the common variation becomes a larger part of total volatility and correlations go up. This effect has been particularly apparent recently because volatility has been extraordinarily high.

Eugene F. Fama
The Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business
Kenneth R. French
The Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College
This information is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Dimensional Fund Advisors and does not represent a recommendation of any particular security, strategy or investment product. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Eugene Fama and Ken French are members of the Board of Directors for and provide consulting services to Dimensional Fund Advisors LP.