Abstract
This article provides the first empirical application of the dynamic equicorrelation (DECO) model to a cross-market data set composed of equities, bonds, foreign exchange and commodity returns during 1983–2013. The results reveal that the average cross-market equicorrelation is around 47%, although it is found to be time-varying and mean-reverting. Besides, we display the equicorrelation across markets as a natural way of looking at the DECO dynamics, which overcomes the cumbersome estimation difficulties encountered with multivariate GARCH models. Implications are derived in terms of asset management.
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