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The uncertainty of conditional returns, volatilities and correlations in DCC models

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  • Ruiz, Esther
  • Fresoli, Diego

Abstract

When forecasting conditional correlations that evolve according to a Dynamic Conditional Correlation (DCC) model, only point forecasts can be obtained at each moment of time. In this paper, we analyze the finite sample properties of a bootstrap procedure to approximate the density of these forecasts that also allows obtaining conditional densities for future returns and volatilities. The procedure is illustrated by obtaining conditional forecast intervals and regions of returns, volatilities andcorrelations in the context of a system of daily exchange rates returns of the Euro, Japanese Yen and Australian Dollar against the US Dollar

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  • Ruiz, Esther & Fresoli, Diego, 2014. "The uncertainty of conditional returns, volatilities and correlations in DCC models," DES - Working Papers. Statistics and Econometrics. WS ws140202, Universidad Carlos III de Madrid. Departamento de Estadística.
  • Handle: RePEc:cte:wsrepe:ws140202
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    2. Fresoli, Diego & Ruiz, Esther & Pascual, Lorenzo, 2015. "Bootstrap multi-step forecasts of non-Gaussian VAR models," International Journal of Forecasting, Elsevier, vol. 31(3), pages 834-848.
    3. Domingo Rodríguez Benavides & Ignacio Perrotini Hernández, 2019. "Las correlaciones dinámicas de contagio financiero:Estados Unidos y América Latina," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 14(2), pages 151-168, Abril-Jun.
    4. Manh Cuong Dong & Cathy W. S. Chen & Sangyoel Lee & Songsak Sriboonchitta, 2019. "How Strong is the Relationship Among Gold and USD Exchange Rates? Analytics Based on Structural Change Models," Computational Economics, Springer;Society for Computational Economics, vol. 53(1), pages 343-366, January.

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