Volatility Threshold Dynamic Conditional Correlations: An International Analysis

Maria Kasch and Massimiliano Caporin

Journal of Financial Econometrics, 2013, vol. 11, issue 4, 706-742

Abstract: This article 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 article represents a useful tool for the study of market contagion. Copyright The Author, 2013. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

Date: 2013
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Working Paper: Volatility Threshold Dynamic Conditional Correlations: An International Analysis (2008)
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