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http://hdl.handle.net/2451/27885
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| Title: | A component model for dynamic correlations |
| Authors: | Engle, Robert
Colacito, Riccardo
Ghysels, Eric |
| Issue Date: | 9-Feb-2009 |
| Series/Report no.: | FIN-08-039 |
| Abstract: | The idea of component models for volatility is extended to dynamic
correlations. We propose a model of dynamic correlations with a short-
and long-run component specification. We call this class of models
DCC-MIDAS as the key ingredients are a combination of the Engle (2002)
DCC model, the Engle and Lee (1999) component GARCH model to replace the
original DCC dynamics with a component specification and the Engle,
Ghysels, and Sohn (2006) GARCH-MIDAS component specification that allows
us to extract a long-run correlation component via mixed data sampling.
We provide a comprehensive econometric analysis of the new class of
models, including conditions for positive semi-definiteness, and provide
extensive empirical evidence that supports the model specification. |
| URI: | http://hdl.handle.net/2451/27885 |
| Appears in Collections: | Finance Working Papers
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