Structural Conditional Correlation
AbstractA 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 modelled 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.
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Bibliographic InfoPaper provided by University of Regensburg, Department of Economics in its series University of Regensburg Working Papers in Business, Economics and Management Information Systems with number 434.
Date of creation: 02 Jan 2009
Date of revision:
Simultaneity; Identification; EGARCH; Conditional Correlation;
Other versions of this item:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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