Supplementary Appendix to 'Modeling the Dependence of Conditional Correlations on Market Volatility'

16 Pages Posted: 10 May 2017

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

Edoardo Otranto

University of Messina; Universita di Cagliari - Centre for North South Economic Research (CRENOS)

Date Written: March 19, 2015

Abstract

This Appendix contains details on several technical points and additional empirical results. Sections in this Appendix are indexed by letters and formulas/tables/figures by a letter followed by a number (e.g. A.1). Sections and formulas/tables/figures of the paper are referenced by numbers. In Section A, we expose the estimation procedure of the models employed in the paper. In Section B, we explain the approximation used to avoid the path dependence problem in Markov Switching models. In Section C, we provide the formulas of the marginal impact of volatility on correlations for each VDCC model. In Section D, we detail the estimation method and the results behind our findings about the long-run and short-run effects of the volatility on the correlations. In Section E, we report the application to the three stock data set (and other subsets of stocks) of the method explained in Section 4.1 to evaluate the performance of the constrained RSDC models. In Section F, we include and comment the estimates of the VDCC models for the thirty stock data set used in Section 4.2.

Full paper is available at: https://ssrn.com/abstract=2965487

Keywords: Dynamic conditional correlations, Markov switching, Minimum variance portfolio, Model confidence set, Forecasting

JEL Classification: C22, C51, C53, C58

Suggested Citation

Bauwens, Luc and Otranto, Edoardo, Supplementary Appendix to 'Modeling the Dependence of Conditional Correlations on Market Volatility' (March 19, 2015). Available at SSRN: https://ssrn.com/abstract=2965503 or http://dx.doi.org/10.2139/ssrn.2965503

Luc Bauwens (Contact Author)

Université catholique de Louvain ( email )

CORE
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
32 10 474321 (Phone)
32 10 474301 (Fax)

Edoardo Otranto

University of Messina ( email )

Piazza Pugliatti, 1
Messina, 98122
Italy

Universita di Cagliari - Centre for North South Economic Research (CRENOS) ( email )

V. S. Ignazio 78
Cagliari, 09124
Italy

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