Dynamic Conditional Correlations and Risk Spread between International Financial Markets: A DCC-Garch Analysis

Bogdan Dima (), Lucian Liviu Albu, Ştefana Maria Dima (), Roxana Ioan (), Anca SARAOLU Ionaşcuţi () and Marian Ilie Siminica ()
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Bogdan Dima: West University of Timisoara, Faculty of Economics and Business Administration, Timisoara, Romania;
Lucian Liviu Albu: Institute for Economic Forecasting, Romanian Academy,
Ştefana Maria Dima: West University of Timisoara, Faculty of Economics and Business Administration; East European Center for Research in Economics and Business (ECREB), Timisoara, Romania; Institute of Advanced Environmental Research, West University of Timișoara. Corresponding author
Roxana Ioan: West University of Timisoara, Faculty of Economics and Business Administration, Timisoara, Romania;
Anca SARAOLU Ionaşcuţi: West University of Timisoara, Doctoral School of Economics and Business Administration, Timisoara,
Marian Ilie Siminica: University of Craiova.

Journal for Economic Forecasting, 2025, issue 1, 5-22

Abstract: The paper studies the dynamic conditional correlations (DCC Multivariate GARCH models) of risks for 31 major financial markets, using Expected Shortfall as proxies for these markets' risk. We selected several specifications of the Generalized Orthogonal GARCH model and of the Copula Asymmetric Generalized DCC model. Most of the GARCH-Copula models outperform standard DCC-GARCH and GO-GARCH models. We further study the nature of the processes driving these correlation series, finding the correlations non-stationary (but not ‘explosive’) and exhibiting multifractal properties. Moreover, some DCCs may act as triggers (at least in a ‘nonlinear’ Granger sense) for others. Finally, we show evidence of cross-market risk spread during the 2007-2010 turmoil, pandemic and Ukrainian war crises.

Keywords: GO-GARCH DCC; Copula-GARCH DCC; multivariate affine Normal-Inverse Gaussian distribution; Expected Shortfall; financial crises (search for similar items in EconPapers)
JEL-codes: C10 C13 G15 G32 (search for similar items in EconPapers)
Date: 2025
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