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A component model for dynamic correlations

  • Colacito, Riccardo
  • Engle, Robert F.
  • Ghysels, Eric

We propose a model of dynamic correlations with a short- and long-run component specification, by extending the idea of component models for volatility. We call this class of models DCC-MIDAS. The key ingredients are the Engle (2002) DCC model, the Engle and Lee (1999) component GARCH model replacing the original DCC dynamics with a component specification and the Engle et al. (2006) GARCH-MIDAS specification that allows us to extract a long-run correlation component via mixed data sampling. We provide a comprehensive econometric analysis of the new class of models, and provide extensive empirical evidence that supports the model's specification.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 164 (2011)
Issue (Month): 1 (September)
Pages: 45-59

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Handle: RePEc:eee:econom:v:164:y:2011:i:1:p:45-59
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