The instability of the correlation structure of the S&P 500
AbstractUsing weekly returns of S&P 500 constituents, we study the time-varying correlation structure during the period of 2006 to mid-2011. Contrary to most of the previous correlation studies of many assets, we do not use rolling correlations but the DCC MV-GARCH model with the MacGyver strategy proposed by Engle (2009). We find empirical evidence that the correlation structure tends to change significantly during the periods of high volatility and market downturns.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34160.
Date of creation: 17 Oct 2011
Date of revision:
correlation structure; dynamic conditional correlations; range-based volatility; conditional volatility; MacGyver strategy;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-22 (All new papers)
- NEP-CIS-2011-10-22 (Confederation of Independent States)
- NEP-ETS-2011-10-22 (Econometric Time Series)
- NEP-FMK-2011-10-22 (Financial Markets)
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