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A component model for dynamic correlations

Riccardo Colacito (), Robert Engle and Eric Ghysels

Journal of Econometrics, 2011, vol. 164, issue 1, 45-59

Abstract: We propose a model of dynamic correlations with a short- and long-run component specification, by extending the idea of component models for volatility. We call this class of models DCC-MIDAS. The key ingredients are the Engle (2002) DCC model, the Engle and Lee (1999) component GARCH model replacing the original DCC dynamics with a component specification and the Engle et al. (2006) GARCH-MIDAS specification that allows us to extract a long-run correlation component via mixed data sampling. We provide a comprehensive econometric analysis of the new class of models, and provide extensive empirical evidence that supports the model's specification.

Keywords: Dynamic; correlations; Forecasting; Mixed; data; sampling (search for similar items in EconPapers)
Date: 2011
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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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