Asset Correlation—Evidence from UK Firms

• Main Authors: Huan-Chin Cheng, 鄭煥瑾
• Other Authors: Shih-Cheng Lee
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/56652333718618513872

碩士 === 元智大學 === 財務金融學系 === 98 === In this paper we estimate asset correlation with an empirical method, and test the relationship between asset correlation and default probability and test whether or not size is related to asset correlation. We employ Black-Sholes option pricing model (OPM) and Capital asset pricing model (CAPM) and use a sample of UK firms for the period between 2000 and 2007. Empirical results suggest that there is a negative relationship between asset correlation and default probability, which is consistent with capital requirements formula provided by Basel II. We also find that asset correlation is positively related to firms’ size.