The instability of the correlation structure of the S&P 500

Štefan Lyócsa, Tomáš Výrost and Eduard Baumohl

MPRA Paper from University Library of Munich, Germany

Abstract: Using weekly returns of S&P 500 constituents, we study the time-varying correlation structure during the period of 2006 to mid-2011. Contrary to most of the previous correlation studies of many assets, we do not use rolling correlations but the DCC MV-GARCH model with the MacGyver strategy proposed by Engle (2009). We find empirical evidence that the correlation structure tends to change significantly during the periods of high volatility and market downturns.

Keywords: correlation structure; dynamic conditional correlations; range-based volatility; conditional volatility; MacGyver strategy (search for similar items in EconPapers)
JEL-codes: C32 G1 (search for similar items in EconPapers)
Date: 2011-10-17
New Economics Papers: this item is included in nep-cis, nep-ets and nep-fmk
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