The Dynamic Correlations Among the G7 and China: Evidence from Both Realized and Implied Volatilities
Posted: 14 Jun 2016
Date Written: 2015
This paper studies the dynamic correlations among the G7 and China by using EGARCH/DCC models proposed by Engle and Figlewski (2014). We find that the correlations among the G7 can be captured by a general correlation structure and a one-factor model when both realized and implied volatilities are used. However, the common factors in the one-factor model are different when the two different volatilities are considered. Particularly, the U.S. is not the common factor in the two cases. Further, there is no significant correlations between China and the G7 countries by using realized volatilities. Nevertheless, the correlations increase during the 2007-2008 financial crisis. Furthermore, there results are robust to subsample analysis and different measures of realized volatilities.
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