On Asymmetric Correlations and Their Applications in Financial Markets

Progress on asymmetric correlations of asset returns has recently advanced considerably. Asymmetric can cause problems in hedging effectiveness and overstate the value diversification. Furthermore, considering portfolio construction significantly enhances performance. The purpose this paper is to trace developments identify areas that require further research. We examine three aspects correlations: first, existence between their significance tests; second, test different markets financial assets; third, root analysis correlations. In first part, contents extreme theory, H statistic a model-free are covered. second commonly used models such as copula GARCH included. addition formulations, many other methods included, regime switching, Markov switching model, multifractal detrend cross-correlation method. addition, we compare advantages differences models. third causes asymmetry discussed, for example, higher common fundamental risk, correlation individual so on.