Correlations and Volatilities of Asynchronous Data By

Asset prices are typically measured when markets close however the closing times may differ across markets. As a result the returns appear to have predictability and correlations are understated. This will distort the value of portfolios, value at risk measures, and hedge strategies. A solution is proposed. Prices can be "synchronized" by computing estimates of the values of assets even when markets are closed, given information from markets which are open. From these prices, synchronized returns are defined and can be used to perform standard calculations including measuring time varying volatilities and correlations with GARCH. The method is applied to G7 index data. 1 The authors wish to thank the editor for very helpful comments on an earlier draft. The current affiliations of the authors are listed.