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Volatility Threshold Dynamic Conditional Correlations: An International Analysis

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  • Maria Kasch

    (University of Bonn)

  • Massimiliano Caporin

    (Università di Padova)

Abstract

We extend the Dynamic Conditional Correlation multivariate GARCH specification to investigate the dynamic contemporaneous relationship between correlations and variances of the underlying assets. We present a generalization of the DCC model where the dynamic behavior depends on the assets variances through a threshold structure. Our purpose is to analyze the behavior of correlations in periods of high volatility. The application of the proposed specification to a sample of markets heterogeneous in the levels of their development allows the identification of market pairs whose correlations show low sensitivity to high underlying volatility.

Suggested Citation

  • Maria Kasch & Massimiliano Caporin, 2008. "Volatility Threshold Dynamic Conditional Correlations: An International Analysis," "Marco Fanno" Working Papers 0065, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0065
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    More about this item

    Keywords

    dynamic correlations; thresholds; volatility thresholds; spillovers;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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