Student-t distribution based VAR-MGARCH: an application of the DCC model on international portfolio risk management

Yuan-Hung Hsu Ku

Applied Economics, 2008, vol. 40, issue 13, 1685-1697

Abstract: Significant second-moment transmission effects and obvious time-varying patterns of correlation coefficients among major equity and currency markets in the US, Japan and the UK are found to exist. Such observations inspire the time-varying setting of dynamic conditional correlation coefficients in MGARCH models. On the other hand, the multivariate Student-t distribution is suitable for analysing the visible leptokurtosis that is common in financial markets. Both are important for international portfolio risk management. Thus, a comparison on the hedging efficiency of hypothetical portfolios consisting of stock and currency future positions is conducted in order to justify the multivariate Student-t distribution based on the DCC-MGARCH model.

Date: 2008
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DOI: 10.1080/00036840600892894

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