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Correlations change over time. Assets more strongly positively correlated wh market crashes, and less positively co the market booms. In your opinion, hc time-varying correlations would affec berformance of the market portfolio?

Correlations change over time. Assets more strongly positively correlated wh market crashes, and less positively co the market booms. In your opinion, hc time-varying correlations would affec berformance of the market portfolio?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Correlations change over time. Assets tend to be more strongly positively correlated when the market crashes, and less positively correlated when the market booms. In your opinion, how do these time-varying correlations would affect the performance of the market portfolio? Would the market portfolio post higher or lower Sharpe ratios when the market booms vs when it crashes if correlations are time-varying?
Transcribed Image Text:Correlations change over time. Assets tend to be more strongly positively correlated when the market crashes, and less positively correlated when the market booms. In your opinion, how do these time-varying correlations would affect the performance of the market portfolio? Would the market portfolio post higher or lower Sharpe ratios when the market booms vs when it crashes if correlations are time-varying?
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