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Dynamic Conditional Correlation: On Properties and Estimation

Dynamic Conditional Correlation: On Properties and Estimation This article addresses some of the issues that arise with the Dynamic Conditional Correlation (DCC) model. It is proven that the DCC large system estimator can be inconsistent, and that the traditional interpretation of the DCC correlation parameters can result in misleading conclusions. Here, we suggest a more tractable DCC model, called the cDCC model. The cDCC model allows for a large system estimator that is heuristically proven to be consistent. Sufficient stationarity conditions for cDCC processes of interest are established. The empirical performances of the DCC and cDCC large system estimators are compared via simulations and applications to real data. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business & Economic Statistics Taylor & Francis

Dynamic Conditional Correlation: On Properties and Estimation

18 pages

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References (42)

Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1537-2707
eISSN
0735-0015
DOI
10.1080/07350015.2013.771027
Publisher site
See Article on Publisher Site

Abstract

This article addresses some of the issues that arise with the Dynamic Conditional Correlation (DCC) model. It is proven that the DCC large system estimator can be inconsistent, and that the traditional interpretation of the DCC correlation parameters can result in misleading conclusions. Here, we suggest a more tractable DCC model, called the cDCC model. The cDCC model allows for a large system estimator that is heuristically proven to be consistent. Sufficient stationarity conditions for cDCC processes of interest are established. The empirical performances of the DCC and cDCC large system estimators are compared via simulations and applications to real data.

Journal

Journal of Business & Economic StatisticsTaylor & Francis

Published: Jul 1, 2013

Keywords: Generalized profile likelihood; Integrated correlation; Multivariate GARCH model; Quasi-maximum-likelihood; Two-step estimation

There are no references for this article.