Supplementary Appendix to 'Modeling the Dependence of Conditional Correlations on Market Volatility'
16 Pages Posted: 10 May 2017
Date Written: March 19, 2015
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: Suggested Citation