Modeling the dependence of conditional correlations on volatility
Several models have been developed to capture the dynamics of the conditional correlations between time series of financial returns, but few studies have investigated the determinants of the correlation dynamics. A common opinion is that the market volatility is a major determinant of the correlations. We extend some models to capture explicitly the dependence of the correlations on the volatility of the market of interest. The models differ in the way by which the volatility influences the correlations, which can be transmitted through linear or nonlinear, and direct or indirect effects. They are applied to different data sets to verify the presence and possible regularity of the volatility impact on correlations.
|Date of creation:||06 May 2013|
|Contact details of provider:|| Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10474304
Web page: http://www.uclouvain.be/core
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Colacito, Riccardo & Engle, Robert F. & Ghysels, Eric, 2011. "A component model for dynamic correlations," Journal of Econometrics, Elsevier, vol. 164(1), pages 45-59, September.
- Ramchand, Latha & Susmel, Raul, 1998. "Volatility and cross correlation across major stock markets," Journal of Empirical Finance, Elsevier, vol. 5(4), pages 397-416, October.
- Andrew J. Filardo, 1993.
"Business cycle phases and their transitional dynamics,"
Research Working Paper
93-14, Federal Reserve Bank of Kansas City.
- Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
- BAUWENS, Luc & PREMINGER, Arie & ROMBOUTS, Jeroen VK, "undated".
"Theory and inference for a Markov switching Garch model,"
CORE Discussion Papers RP
2303, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Luc Bauwens & Arie Preminger & Jeroen V. K. Rombouts, 2010. "Theory and inference for a Markov switching GARCH model," Econometrics Journal, Royal Economic Society, vol. 13(2), pages 218-244, 07.
- Luc Bauwens & Arie Preminger & Jeroen V.K. Rombouts, 2007. "Theory and inference for a Markov switching Garch model," Cahiers de recherche 07-09, HEC Montréal, Institut d'économie appliquée.
- Luc, BAUWENS & Arie, PREMINGER & Jeroen, ROMBOUTS, 2007. "Theory and inference for a Markov switching GARCH model," Discussion Papers (ECON - Département des Sciences Economiques) 2007033, Université catholique de Louvain, Département des Sciences Economiques.
- BAUWENS, Luc & PREMINGER, Arie & ROMBOUTS, Jeroen V.K., 2007. "Theory and inference for a Markov switching GARCH model," CORE Discussion Papers 2007055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Luc Bauwens & Arie Preminger & Jeroen V.K. Rombouts, 2007. "Theory and Inference for a Markov-Switching GARCH Model," Cahiers de recherche 0733, CIRPEE.
- Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993.
" On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks,"
Journal of Finance,
American Finance Association, vol. 48(5), pages 1779-1801, December.
- Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
- Annastiina Silvennoinen & Timo Teräsvirta, 2015.
"Modeling Conditional Correlations of Asset Returns: A Smooth Transition Approach,"
Taylor & Francis Journals, vol. 34(1-2), pages 174-197, February.
- Annastiina Silvennoinen & Timo Teräsvirta, 2012. "Modelling conditional correlations of asset returns: A smooth transition approach," CREATES Research Papers 2012-09, Department of Economics and Business Economics, Aarhus University.
- Pelletier, Denis, 2006.
"Regime switching for dynamic correlations,"
Journal of Econometrics,
Elsevier, vol. 131(1-2), pages 445-473.
- Denis Pelletier, 2004. "Regime Switching for Dynamic Correlations," Econometric Society 2004 North American Summer Meetings 230, Econometric Society.
- Engle, Robert F. & Ng, Victor K. & Rothschild, Michael, 1990.
"Asset pricing with a factor-arch covariance structure : Empirical estimates for treasury bills,"
Journal of Econometrics,
Elsevier, vol. 45(1-2), pages 213-237.
- Robert F. Engle & Victor Ng & Michael Rothschild, 1988. "Asset Pricing with a Factor Arch Covariance Structure: Empirical Estimates for Treasury Bills," NBER Technical Working Papers 0065, National Bureau of Economic Research, Inc.
- Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
- Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
- King, Mervyn A & Wadhwani, Sushil, 1990.
"Transmission of Volatility between Stock Markets,"
Review of Financial Studies,
Society for Financial Studies, vol. 3(1), pages 5-33.
- Edoardo Otranto, 2005. "The multi-chain Markov switching model," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(7), pages 523-537.
- Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
- Luc Bauwens & Christian M. Hafner & Diane Pierret, 2013.
"Multivariate Volatility Modeling Of Electricity Futures,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 28(5), pages 743-761, 08.
- bauwens, Luc & hafner, Christian & pierret, Diane, 2011. "Multivariate volatility modeling of electricity futures," CORE Discussion Papers 2011011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Luc Bauwens & Christian M. Hafner & Diane Pierret, 2011. "Multivariate Volatility Modeling of Electricity Futures," SFB 649 Discussion Papers SFB649DP2011-063, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Bayoumi, Tamim & Fazio, Giorgio & Kumar, Manmohan & MacDonald, Ronald, 2007. "Fatal attraction: Using distance to measure contagion in good times as well as bad," Review of Financial Economics, Elsevier, vol. 16(3), pages 259-273.
- François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
- Longin, Francois & Solnik, Bruno, 1995. "Is the correlation in international equity returns constant: 1960-1990?," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 3-26, February.
- Hamilton, James D. & Susmel, Raul, 1994.
"Autoregressive conditional heteroskedasticity and changes in regime,"
Journal of Econometrics,
Elsevier, vol. 64(1-2), pages 307-333.
- Tom Doan, "undated". "RATS programs to estimate Hamilton-Susmel Markov Switching ARCH model," Statistical Software Components RTZ00083, Boston College Department of Economics.
- Adam Clements & Mark Doolan & Stan Hurn & Ralf Becker, 2009. "Evaluating multivariate volatility forecasts," NCER Working Paper Series 41, National Centre for Econometric Research, revised 25 Nov 2009.
When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2013014. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.