The Correlation Risk Premium Of Stock Market And Portfolio Strategy Research

Correlation plays an important role in the financial markets.Change in the correlation will lead to the portfolio diversification degree.Also correlation risk will be taken to the investors.With the rapid development of Chinese financial markets and the growing uncertainty of foreign financial markets,investors will focus on the correlation itself.Therefore,when we invest in the market,how to characterize correlation risk will become an important issue,as well as if there is a correlatiOn risk premium.At the same time,how to spread risk will also be a problem that investors concern about.Firstly,under the theoretical framework of VaR,we construct the average implied correlation index.As well,we make a statistical analysis on their basic properties.The paper construct a portfolio as a representative of stock market,which consists of the all industry indexs of SWS.We select the period from July 2003 to December 2015.Then we construct the average implied correlation index and make a statistical analysis on their basic properties.The results show that the average implied correlation under the VaR method can exqplain the trend of stock market in a better way.When the market is stable,the average implied correlation are low.In contrast,when the market is extreme,it increase sharply,just like the financial crisis and the stock market crash in 2015.Further,we construct the correlation risk factor based on the average implied correlationSecondly,comparing with other risk factors,we research on the special pricing information in the correlation risk factor.We try to get the price of correlation risk premium in the next.According to the theory of Fama-Macbeth method,we research on the correlation risk premium and take a robustness testing.We determine to select all the stocks in the market as samples.The period in this chapter is from July 2003 to December 2015.The results show that the correlation risk is significant priced and has a significant negative price.Also,this result is not affected by other risk factors.Therefore,when other conditions are determined,portfolio in the stock market will get a low return when correlation is high In condition,correlation risk factor can add to the asset pricing modelFinally,in order to spread or hedge the risk,we constructed a dynamic portfolio and a portfolio insurance strategy under the implied correllatioa It will lead to a scientific investment and a rational investment.