Financial Markets and Portfolio Management

, Volume 25, Issue 4, pp 411–433

Co-movement of revenue: structural changes in the business cycle



The co-movement of revenue growth across different industries changes over the business cycle. Using a large sample of quarterly firm revenues, aggregated to industry data from 1969 to 2009, we demonstrate that the correlation is the highest during a crisis. Our findings of structural changes in correlation have implications for diversification decisions in portfolio analysis and risk management. The higher correlation in crisis periods increases the downside risk and bankruptcy probability of business portfolios. We test the hypothesis that average correlations are significantly different, by applying permutation and bootstrap techniques. As robustness checks, both correlations between industries and the aggregate market and correlations between earnings confirm our findings.


Correlation Business cycle Revenue Earnings Crisis Bootstrap Permutation test 

JEL Classification

C12 E32 G11 M49 


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Copyright information

© Swiss Society for Financial Market Research 2011

Authors and Affiliations

  1. 1.Graduate School of Risk ManagementUniversity of CologneCologneGermany

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