The instability of the correlation structure of the S&P 500
Using weekly returns of S&P 500 constituents, we study the time-varying correlation structure during the period of 2006 to mid-2011. Contrary to most of the previous correlation studies of many assets, we do not use rolling correlations but the DCC MV-GARCH model with the MacGyver strategy proposed by Engle (2009). We find empirical evidence that the correlation structure tends to change significantly during the periods of high volatility and market downturns.
|Date of creation:||17 Oct 2011|
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- Engle, Robert F & Sheppard, Kevin K, 2001.
"Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH,"
University of California at San Diego, Economics Working Paper Series
qt5s2218dp, Department of Economics, UC San Diego.
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