In this study, we first measure the systematic correlation level risk and systematic correlation shock risk based on mixed vine copula method and investigate their relationship with stock return. The empirical result shows that correlation is significantly and negatively priced as risk factor in China which is dynamic through different regimes. We find out that transformation mechanism between idiosyncratic correlation and systematic correlation is supported at stock-level and index-level.
JEL Classification: G11; G12
Keywords: systematic correlation risk; MacBeth regression; regime-switching; correlation transformation