Spurious Dynamic Conditional Correlation
University of St. Gallen
Thorsten W. Glück
European Business School (EBS) Wiesbaden, Germany - Department of Finance, Accounting and Real Estate
affiliation not provided to SSRN
November 1, 2012
Conditional correlations estimated by multivariate GARCH models tend to exhibit unstable and erratic behavior leading to spurious conditional correlation dynamics. In this paper, we demonstrate that the autocovariances of conditional correlations generated by an autoregressive GARCH-type model are highly sensitive to small changes in model parameters.
Number of Pages in PDF File: 14
Keywords: Multivariate GARCH models; dynamic conditional correlation (DCC); constant conditional correlation; rolling window estimator; volatility of conditional correlation; spurious correlation.
JEL Classification: C52, C53working papers series
Date posted: November 24, 2011 ; Last revised: November 13, 2012
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