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Volatility Threshold Dynamic Conditional Correlations: An International Analysis

  • Maria Kasch

    ()

    (University of Bonn)

  • Massimiliano Caporin

    ()

    (Università di Padova)

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.

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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0065.

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Length: 52 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:pad:wpaper:0065
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