A Generalized Dynamic Conditional Correlation Model: Simulation and Application to Many Assets

Christian Hafner and Philip Hans Franses

Econometric Reviews, 2009, vol. 28, issue 6, 612-631

Abstract: In this article, we put forward a generalization of the Dynamic Conditional Correlation (DCC) Model of Engle (2002). Our model allows for asset-specific correlation sensitivities, which is useful in particular if one aims to summarize a large number of asset returns. We propose two estimation methods, one based on a full likelihood maximization, the other on individual correlation estimates. The resultant generalized DCC (GDCC) model is considered for daily data on 39 U.K. stock returns in the FTSE. We find convincing evidence that the GDCC model improves on the DCC model and also on the CCC model of Bollerslev (1990).

Keywords: Dynamic conditional correlation; Multivariate GARCH (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (66)

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DOI: 10.1080/07474930903038834

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