We propose a new approach to model high and low frequency components of equity correlations. Our framework combines a factor asset pricing structure with other specifications capturing dynamic properties of volatilities and covariances between a single common factor and idiosyncratic returns....

We model high and low frequency variation in global equity correlations using a sample of 43 countries, including developed and emerging markets during the period 1995-2008. Such variations are characterized by a multifactor asset pricing structure with second-moments dynamics leading to high...