Dynamic Conditional Correlations for Asymmetric Processes

Manabu Asai and Michael McAleer

No EI 2010-76, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: The paper develops two Dynamic Conditional Correlation (DCC) models, namely the Wishart DCC (WDCC) model and the Matrix-Exponential Conditional Correlation (MECC) model. The paper applies the WDCC approach to the exponential GARCH (EGARCH) and GJR models to propose asymmetric DCC models. We use the standardized multivariate t-distribution to accommodate heavy-tailed errors. The paper presents an empirical example using the trivariate data of the Nikkei 225, Hang Seng and Straits Times Indices for estimating and forecasting the WDCC-EGARCH and WDCC-GJR models, and compares the performance with the asymmetric BEKK model. The empirical results show that AIC and BIC favour the WDCC-EGARCH model to the WDCC-GJR and asymmetric BEKK models. Moreover, the empirical results indicate that the WDCC-EGARCH-t model produces reasonable VaR threshold forecasts, which are very close to the nominal 1% to 3% values.

Keywords: EGARCH; GJR; asymmetric BEKK; dynamic conditional correlations; heavy-tailed errors; matrix exponential model; wishart process (search for similar items in EconPapers)
Date: 2010-12-22
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https://repub.eur.nl/pub/21949/EI2010-76.pdf (application/pdf)

Related works:
Working Paper: Dynamic Conditional Correlations for Asymmetric Processes (2011)
Working Paper: Dynamic Conditional Correlations for Asymmetric Processes (2010)
Working Paper: Dynamic Conditional Correlations for Asymmetric Processes (2010)
Working Paper: Dynamic Conditional Correlations for Asymmetric Processes (2009)
Working Paper: Dynamic Conditional Correlations for Asymmetric Processes (2009)
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