Vargas, Gregorio A. (2006): An Asymmetric Block Dynamic Conditional Correlation Multivariate GARCH Model. Published in: The Philippine Statistician , Vol. 55, No. 1-2 (2006): pp. 83-102.
Download (187kB) | Preview
The Block DCC model for determining dynamic correlations within and between groups of financial asset returns is extended to account for asymmetric effects. Simulation results show that the Asymmetric Block DCC model is competitive in in-sample forecasting and performs better than alternative DCC models in out-of-sample forecasting of conditional correlation in the presence of asymmetric effect between blocks of asset returns. Empirical results demonstrate that the model is able to capture the asymmetries in conditional correlations of some blocks of currencies in East Asia in the turbulent years of the late 1990s.
|Item Type:||MPRA Paper|
|Original Title:||An Asymmetric Block Dynamic Conditional Correlation Multivariate GARCH Model|
|Keywords:||asymmetric effect; block dynamic conditional correlation; multivariate GARCH|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models
G - Financial Economics > G1 - General Financial Markets > G10 - General
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling
|Depositing User:||Gregorio A. Vargas|
|Date Deposited:||07 Oct 2006|
|Last Modified:||11 Feb 2016 13:03|
Ang, A. and J. Chen (2001), “Asymmetric Correlations of Equity Portfolios,” Journal of Financial Economics, 63(3), 443-494.
Bauwens, L., S. Laurent and J.V.K. Rombouts (2006), “Multivariate GARCH Models: A Survey,” Journal of Applied Econometrics, 21(1), 2006.
Billio, M., M. Caporin and M. Gobbo (2003), “Block Dynamic Conditional Correlation Multivariate GARCH Models,” Working Paper 03.03, Gruppi di Ricerca Economica Teorica e Applicata, Venice.
Bollerslev, T. (1986), “Generalized Autoregressive Conditional Heteroskedasticity,” Journal of Econometrics, 31, 307-327.
Cajigas, J. and G. Urga (2005), “Dynamic Conditional Correlation Models with Asymmetric Multivariate Laplace Innovations,” Centre for Econometric Analysis, Cass Business School.
Cappiello L., R.F. Engle and K. Sheppard (2003), “Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns,” Working Paper No. 204, European Central Bank.
Conrad, J., M. Gultekin and G. Kaul (1991), “Asymmetric Predictability of Conditional Variances,” Review of Financial Studies, 4, 597-622.
Diebold, F.X. (2004), “The Nobel Memorial Prize for Robert F. Engle,” Scandinavian Journal of Economics, 106, 165-185.
Diebold, F.X. and R. S. Mariano (1995), “Comparing Predictive Accuracy,” Journal of Business and Economic Statistics, 13(3), 253-263.
Engle, R.F. (1982), “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation,” Econometrica, 50, 987-1007.
Engle, R.F. (2002), “Dynamic Conditional Correlation: A Simple Class of Generalized Autoregressive Conditional Heteroskedasticity Models,” Journal of Business and Economic Statistics, 20, 339-350.
Engle, R.F. and J. Mezrich (1996), “GARCH for Groups,” Risk August, 9(8), 36-40.
Engle, R.F. and V.K. Ng (1993), “Measuring and Testing the Impact of News on Volatility,” Journal of Finance, 48, 987-1008.
Engle, R.F. and K. Sheppard (2001), “Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH,” Working Paper 8554, National Bureau of Economic Research.
Erb, C.B., C.R. Harvey and T.E. Viskanta (1994), “Forecasting International Equity Correlations,” Financial Analysts Journal, 50, 32-45.
French, K.R., G.W. Schwert and R.F. Stambaugh (1987), “Expected Stock Returns and Volatility,” Journal of Financial Economics, 19, 3-29.
Harvey, D., S. Leybourne and P. Newbold (1997), “Testing the Equality of Prediction Mean Squared Errors,” International Journal of Forecasting, 13, 281-291.
Kroner, K.F. and V. Ng (1998), “Modeling Asymmetric Comovements of Asset Returns,” Review of Financial Studies, 11, 817-844.
Lo, A. and C. MacKinlay (1990), “When are Contrarian Profits due to Stock Market Overreaction?” Review of Financial Studies, 3, 175-205.
Longin, F. and B. Solnik (2001), “Extreme Correlation of International Equity Markets,” Journal of Finance, 56(2), 646-676.
Milunovich, G.D. (2003), “Modeling Dependence Structure in Size-Sorted Portfolios: A Structural Multivariate GARCH Model,” Working Paper, School of Economics, University of New South Wales.
Nelson, D.B. (1991), “Conditional Heteroskedasticity in Asset Returns: A New Approach,” Econometrica, 59, 347-370.
Patton, A. (2004), “On the Out-of-Sample Importance of Skewness and Asymmetric Dependence for Asset Allocation,” Journal of Financial Econometrics, 2(1), 130-168.
Schwert, G.W. (1990), “Stock Volatility and the Crash of ’87,” Review of Financial Studies, 3, 77-102.
Tse, Y.K. and A.K.C. Tsui (2002), “A Multivariate GARCH Model with Time-Varying Correlations,” Journal of Business and Economic Statistics, 20(3), 351-362.