Abstract
The RiskMetrics Group released the RiskMetrics Volatility and Correlation Indices (RMVI and RMCI, respectively) in December, 1998 with the intention to provide a way to quantify the levels of volatility and correlation in the world markets. While changes in the RMVI are relatively simple to explain, changes in the RMCI, are a bit more difficult to digest. In particular, in October, 1999, the RMCI plunged to historically low levels. In this article, the drop in the RMCI is investigated, and a method to attribute index changes to the index constituents is developed. In the end, the drop in the RMCI is attributed to the rallies in the Yen and Euro that occurred in the early fall of 1999.
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