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Structural Conditional Correlation

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  • Enzo Weber

Abstract

A small strand of recent literature is occupied with identifying simultaneity in multiple equation systems through autoregressive conditional heteroscedasticity. Since this approach assumes that the structural innovations are uncorrelated, any contemporaneous connection of the endogenous variables needs to be exclusively explained by mutual spillover effects. In contrast, this paper allows for instantaneous covariances, which become identifiable by imposing the constraint of structural constant/dynamic conditional correlation (SCCC/SDCC). In this, common driving forces can be modeled in addition to simultaneous transmission effects. The methodology is applied to the Dow Jones and Nasdaq Composite indexes, illuminating scope and functioning of the new models. Copyright The Author 2009. Published by Oxford University Press. All rights reserved. For Permissions, please e-mail: journals.permissions@oupjournals.org, Oxford University Press.

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Bibliographic Info

Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 8 (2010)
Issue (Month): 3 (Summer)
Pages: 392-407

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Handle: RePEc:oup:jfinec:v:8:y:2010:i:3:p:392-407

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Cited by:
  1. Enzo Weber, 2008. "Simultaneous Stochastic Volatility Transmission Across American Equity Markets," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2008-049, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Strohsal, Till & Weber, Enzo, 2013. "Identifying Volatility Signals from Time-Varying Simultaneous Stock Market Interaction," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79903, Verein für Socialpolitik / German Economic Association.
  3. Jahn, Elke J. & Weber, Enzo, 2012. "Identifying the Substitution Effect of Temporary Agency Employment," IZA Discussion Papers 6471, Institute for the Study of Labor (IZA).
  4. Till Strohsal & Enzo Weber, 2012. "The Signal of Volatility," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2012-043, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  5. Helmut Lütkepohl & Anton Velinov, 2014. "Structural Vector Autoregressions: Checking Identifying Long-run Restrictions via Heteroskedasticity," Discussion Papers of DIW Berlin, DIW Berlin, German Institute for Economic Research 1356, DIW Berlin, German Institute for Economic Research.
  6. Weber, Enzo & Zhang, Yanqun, 2012. "Common influences, spillover and integration in Chinese stock markets," Journal of Empirical Finance, Elsevier, Elsevier, vol. 19(3), pages 382-394.
  7. Choe, Kwang-il & Choi, Pilsun & Nam, Kiseok & Vahid, Farshid, 2012. "Testing financial contagion on heteroskedastic asset returns in time-varying conditional correlation," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 20(2), pages 271-291.
  8. Weber, Enzo, 2013. "Decomposing U.S. Stock Market Comovement into spillovers and common factors," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 26(C), pages 106-118.
  9. Conrad, Christian & Weber, Enzo, 2013. "Measuring Persistence in Volatility Spillovers," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79850, Verein für Socialpolitik / German Economic Association.
  10. Numan Ülkü, 2011. "Modeling Comovement among Emerging Stock Markets: The Case of Budapest and Istanbul," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 61(3), pages 277-304, July.
  11. Ülkü, Numan & Weber, Enzo, 2013. "Identifying the interaction between stock market returns and trading flows of investor types: Looking into the day using daily data," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(8), pages 2733-2749.

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