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A Generalized Dynamic Conditional Correlation Model: Simulation and Application To Many Assets

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Hafner, Christian [UCL] Franses, Philip Hans

In this article, we put forward a generalization of the Dynamic Conditional Correlation (DCC) Model of Engle (2002). Our model allows for asset-specific correlation sensitivities, which is useful in particular if one aims to summarize a large number of asset returns. We propose two estimation methods, one based on a full likelihood maximization, the other on individual correlation estimates. The resultant generalized DCC (GDCC) model is considered for daily data on 39 U.K. stock returns in the FTSE. We find convincing evidence that the GDCC model improves on the DCC model and also on the CCC model of Bollerslev (1990).

Document type Article de périodique (Journal article) – Article de recherche
Access type Accès restreint
Publication date 2009
Language Anglais
Journal information "Econometric Reviews" - Vol. 28, no. 6, p. 612-631 (2009)
Peer reviewed yes
Publisher Taylor & Francis Inc (Philadelphia)
issn 0747-4938
e-issn 1532-4168
Publication status Publié
Affiliation UCL - SSH/IMAQ - Institut multidisciplinaire pour la modélisation et l'analyse quantitative
Keywords Dynamic conditional correlation ; Multivariate GARCH
Links
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Bibliographic reference Hafner, Christian ; Franses, Philip Hans. A Generalized Dynamic Conditional Correlation Model: Simulation and Application To Many Assets. In: Econometric Reviews, Vol. 28, no. 6, p. 612-631 (2009)
Permanent URL http://hdl.handle.net/2078.1/34419