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Volatility Threshold Dynamic Conditional Correlations: An International Analysis

  • Maria Kasch
  • Massimiliano Caporin

This article proposes a modeling framework for the study of changes in cross-market comovement conditional on volatility regimes. Methodologically, we extend the Dynamic Conditional Correlation multivariate GARCH model to allow the dynamics of correlations to depend on asset variances through a threshold structure. The empirical application of our model to a sample of international stock markets in 1994--2011 indicates that the periods of market turbulence are associated with an increase in cross-market comovement. The modeling framework proposed in the article represents a useful tool for the study of market contagion. Copyright The Author, 2013. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/jjfinec/nbs028
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Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 11 (2013)
Issue (Month): 4 (September)
Pages: 706-742

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Handle: RePEc:oup:jfinec:v:11:y:2013:i:4:p:706-742
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  17. Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
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