Global equity correlation revolutionizes international markets, boosting cross-asset pricing accuracy.
Global equity correlation is shown to be an important factor in pricing assets in international markets. A model was created to explain why this factor matters and a simple method to measure it was proposed. The factor has a strong negative impact on prices and improves the fit of various asset classes like stocks, commodities, bonds, currencies, and options. By studying the FX market, it was found that global equity correlations can help understand the relationship between equity and currency markets.