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The Copula ADCC-GARCH model can help PIIGS to fly

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  • Miralles-Quirós, José Luis
  • Miralles-Quirós, María del Mar

Abstract

Recent crises have revived the interest of researchers to investigate the economic characteristics of regions such as the PIIGS, which have been the Eurozone’s most troubled economies. We show that it is possible to obtain benefits from investing in these markets by using time-varying returns and volatility forecasts from a Copula-ADCC-GARCH with structural breaks model. The results show that the use of this approach leads to a significant improvement of the Sharpe ratio when compared to the naïve strategy and the optimal portfolios based on a simple multivariate GARCH approach such as the DCC model, even when different transaction costs are considered.

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  • Miralles-Quirós, José Luis & Miralles-Quirós, María del Mar, 2017. "The Copula ADCC-GARCH model can help PIIGS to fly," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 1-12.
    • Handle: RePEc:eee:intfin:v:50:y:2017:i:c:p:1-12
    DOI: 10.1016/j.intfin.2017.08.013
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    2. Lin, Saiyan & Chen, Rongda & Lv, Zhihong & Zhou, Tianqing & Jin, Chenglu, 2019. "Integrated measurement of liquidity risk and market risk of company bonds based on the optimal Copula model," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    3. Albulescu, Claudiu Tiberiu & Aubin, Christian & Goyeau, Daniel & Tiwari, Aviral Kumar, 2018. "Extreme co-movements and dependencies among major international exchange rates: A copula approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 56-69.
    4. Tsuji, Chikashi, 2018. "Return transmission and asymmetric volatility spillovers between oil futures and oil equities: New DCC-MEGARCH analyses," Economic Modelling, Elsevier, vol. 74(C), pages 167-185.

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    More about this item

    Keywords

    PIIGS; Copulas; Multivariate GARCH models; Optimization problems;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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