ABSTRACT This paper aims to clarify the characteristics of stock return dynamics when investor sentiment is deteriorated in equity markets. Further, prior to our empirical analysis, we newly develop the measures of return conjunction and the exponentially weighted correlation coefficient. Namely, our contributions are as follows. First, this paper clarifies the fact that when market sentiment is deteriorated, stock returns present conjunctional behavior. Second, for our empirical analysis, we newly develop two kinds of conjunction measures of stock returns. Third, we also develop the exponentially weighted correlation coefficient measure referring to the exponentially weighted volatility suggested by J.P. Morgan. This correlation measure is a useful tool because it captures forward-looking correlation without difficulty caused by model estimation.
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