Extreme Correlation of International Equity Markets.

Longin, F., & Solnik, B. (2001). Extreme Correlation of International Equity Markets. Journal of Finance, 56(2), 649-676.

Type

Journal article

Intellectual base

Primary research

Year

2001

Volume

56

Issue

2

Pages

649-676

ISSN

0022-1082

DOI

10.1111/0022-1082.00340

DOI registrant

Wiley

Link

https://doi.org/10.1111/0022-1082.00340

Cited from

economics_finance, statistics_experimental_design

Cited by

4 citations across 4 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Apparent Variety Masks Shared Driver
  • In finance and portfolio construction, apparently diversified holdings share a hidden factor — sector, geography, currency, funding source — so that stress-period correlations rise toward unity; hedge-fund "alpha" that is really beta to a common risk factor is the same shape.

    This sourceShows that equity-return correlations rise sharply in bear-market / stress regimes, so apparently diversified holdings move together and the shared factor dominates idiosyncratic noise exactly when diversification was relied upon.

    Supported in partVerified against the publisher's abstract

    The abstract reports that international equity-market correlations rise in bear markets but not in bull markets, backing the stress-period half of the claim only.

    “Correlation increases in bear markets, but not in bull markets.”

    Read by an automated reader; not a human review. How support was checked

• Diversification
  • The 2008 financial crisis exposed precisely this confusion: portfolios that looked diversified by count were structurally undiversified because cross-asset correlations rose toward one under systemic stress.

    This sourceDocuments that cross-asset correlations rise toward one under market stress, destroying diversification precisely when it is most needed.

    Supported in partVerified against the publisher's abstract

    The 2001 abstract reports that international equity-market correlation rises in bear markets, not bull markets, which supports the mechanism but not the 2008-crisis event or a march toward correlation of one.

    “Correlation increases in bear markets, but not in bull markets.”

    Read by an automated reader; not a human review. How support was checked

Mechanisms

• Portfolio Risk Simulation
  • Its failure mode is that calibrated correlations are backward-looking and famously unstable in exactly the crises that matter — historical co-movement understates how tightly positions move together when everything falls at once, so a tail metric read off calm-period data flatters the portfolio.

    This sourceFinds that international equity-market correlations rise in bear markets, rejecting constant-correlation models for downside extremes.

• Rolling Correlation Dashboard
  • It is especially valuable where diversification quietly evaporates — correlations converging toward one under stress is a recurring, well-documented pattern.

    This sourceFinds that international equity-market correlations increase in bear markets, weakening diversification when markets fall.

Verification

Does it exist? Confirmed. This work's DOI resolves to a registered record, which fixes its identity. That is all it fixes.

Does it back the claim? Read against the text for 2 of 4 citations: 2 supported in part. Each verdict is shown under its citation below, with what in the work backs the sentence.

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