Volatility Threshold Dynamic Conditional Correlations: An International Analysis

Forthcoming, Journal of Financial Econometrics

45 Pages Posted: 5 Mar 2007 Last revised: 29 Oct 2012

See all articles by Maria Kasch

Maria Kasch

University of Mannheim - Department of Finance

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Date Written: April 2, 2012

Abstract

This paper proposes a modeling framework for the study of changes in cross-market comovement conditional on volatility regimes. Methodologically, we extend the Dynamic Conditional Correlation multivariate GARCH model to allow the dynamics of correlations to depend on asset variances through a threshold structure. The empirical application of our model to a sample of international stock markets in 1994-2011 indicates that the periods of market turbulence are associated with an increase in cross-market comovement. The modeling framework proposed in the paper represents a useful tool for the study of market contagion.

Keywords: Dynamic Correlations, Volatility Thresholds, Comovement, Contagion

JEL Classification: C50, F37, G11, G15

Suggested Citation

Kasch, Maria and Caporin, Massimiliano, Volatility Threshold Dynamic Conditional Correlations: An International Analysis (April 2, 2012). Forthcoming, Journal of Financial Econometrics. Available at SSRN: https://ssrn.com/abstract=968233 or http://dx.doi.org/10.2139/ssrn.968233

Maria Kasch (Contact Author)

University of Mannheim - Department of Finance ( email )

L5, 2, room 105
Mannheim, 68161
Germany
+49 621 181 1514 (Phone)
+49 621 181 1519 (Fax)

Massimiliano Caporin

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

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