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Nonlinearities and Regimes in Conditional Correlations with Different Dynamics

Luc Bauwens () and E. Otrando

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: New parameterizations of the dynamic conditional correlation (DCC) model and of the regime-switching dynamic correlation (RSDC) model are introduced, such that these models provide a specific dynamics for each correlation. They imply a non-linear autoregressive form of dependence on lagged correlations and are based on properties of the Hadamard exponential matrix. The new models are applied to a data set of twenty stock market indices, comparing them to the classical DCC and RSDC models. The empirical results show that the new models improve their classical versions in terms of several criteria.

Keywords: dynamic conditional correlations; regime-switching dynamic correlations; Hadamard exponential matrix (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2018
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Working Paper: Nonlinearities and regimes in conditional correlations with different dynamics (2018) Downloads
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