Department of Economics and Business Economics

Timo Teräsvirta

Modelling conditional correlations of asset returns: A smooth transition approach

Research output: ResearchWorking paper

Standard

Modelling conditional correlations of asset returns: A smooth transition approach. / Silvennoinen, Annastiina; Teräsvirta, Timo.

Aarhus : Institut for Økonomi, Aarhus Universitet, 2012.

Research output: ResearchWorking paper

Harvard

Silvennoinen, A & Teräsvirta, T 2012 'Modelling conditional correlations of asset returns: A smooth transition approach' Institut for Økonomi, Aarhus Universitet, Aarhus.

APA

Silvennoinen, A., & Teräsvirta, T. (2012). Modelling conditional correlations of asset returns: A smooth transition approach. Aarhus: Institut for Økonomi, Aarhus Universitet.

CBE

Silvennoinen A, Teräsvirta T. 2012. Modelling conditional correlations of asset returns: A smooth transition approach. Aarhus: Institut for Økonomi, Aarhus Universitet.

MLA

Silvennoinen, Annastiina and Timo Teräsvirta Modelling conditional correlations of asset returns: A smooth transition approach. Aarhus: Institut for Økonomi, Aarhus Universitet. 2012., 33 p.

Vancouver

Silvennoinen A, Teräsvirta T. Modelling conditional correlations of asset returns: A smooth transition approach. Aarhus: Institut for Økonomi, Aarhus Universitet. 2012.

Author

Silvennoinen, Annastiina ; Teräsvirta, Timo. / Modelling conditional correlations of asset returns: A smooth transition approach. Aarhus : Institut for Økonomi, Aarhus Universitet, 2012.

Bibtex

@techreport{16974c30d47745bf9e3299a29c1b9e52,
title = "Modelling conditional correlations of asset returns: A smooth transition approach",
abstract = "In this paper we propose a new multivariate GARCH model with time-varying conditional correlation structure. The time-varying conditional correlations change smoothly between two extreme states of constant correlations according to a predetermined or exogenous transition variable. An LM-test is derived to test the constancy of correlations and LM- and Wald tests to test the hypothesis of partially constant correlations. Analytical expressions for the test statistics and the required derivatives are provided to make computations feasible. An empirical example based on daily return series of ve frequently traded stocks in the S&P 500 stock index completes the paper.",
keywords = "Multivariate GARCH; Constant conditional correlation; Dynamic conditional correlation; Return comovement; Variable correlation GARCH model; Volatility model evaluation",
author = "Annastiina Silvennoinen and Timo Teräsvirta",
year = "2012",
publisher = "Institut for Økonomi, Aarhus Universitet",
type = "WorkingPaper",
institution = "Institut for Økonomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - Modelling conditional correlations of asset returns: A smooth transition approach

AU - Silvennoinen,Annastiina

AU - Teräsvirta,Timo

PY - 2012

Y1 - 2012

N2 - In this paper we propose a new multivariate GARCH model with time-varying conditional correlation structure. The time-varying conditional correlations change smoothly between two extreme states of constant correlations according to a predetermined or exogenous transition variable. An LM-test is derived to test the constancy of correlations and LM- and Wald tests to test the hypothesis of partially constant correlations. Analytical expressions for the test statistics and the required derivatives are provided to make computations feasible. An empirical example based on daily return series of ve frequently traded stocks in the S&P 500 stock index completes the paper.

AB - In this paper we propose a new multivariate GARCH model with time-varying conditional correlation structure. The time-varying conditional correlations change smoothly between two extreme states of constant correlations according to a predetermined or exogenous transition variable. An LM-test is derived to test the constancy of correlations and LM- and Wald tests to test the hypothesis of partially constant correlations. Analytical expressions for the test statistics and the required derivatives are provided to make computations feasible. An empirical example based on daily return series of ve frequently traded stocks in the S&P 500 stock index completes the paper.

KW - Multivariate GARCH; Constant conditional correlation; Dynamic conditional correlation; Return comovement; Variable correlation GARCH model; Volatility model evaluation

M3 - Working paper

BT - Modelling conditional correlations of asset returns: A smooth transition approach

PB - Institut for Økonomi, Aarhus Universitet

ER -