A generalized dynamic conditional correlation model for many asset returns
In this paper we put forward a generalization of the Dynamic Conditional Correlation (DCC) Model of Engle (2002). Our model allows for asset-specific correlation sensitivities, which is useful in particular if one aims to summarize a large number of asset returns. The resultant GDCC model is considered for daily data on 18 German stock returns, which are all included in the DAX, and for 25 UK stock returns in the FTSE. We find convincing evidence that the GDCC model improves on the DCC model and also on the CCC model of Bollerslev (1990).
|Keywords||dynamic conditional correlation, multivariate GARCH|
|JEL||Semiparametric and Nonparametric Methods (jel C14), Time-Series Models; Dynamic Quantile Regressions (jel C22)|
|Series||Econometric Institute Research Papers|
Hafner, C.M, & Franses, Ph.H.B.F. (2003). A generalized dynamic conditional correlation model for many asset returns (No. EI 2003-18). Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/1718