Predicting volatility and correlations with Financial Conditions Indexes

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Predicting volatility and correlations with Financial Conditions Indexes. / Opschoor, Anne; van Dijk, Dick; van der Wel, Michel.

I: Journal of Empirical Finance, Bind 29, 01.12.2014, s. 435-447.

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avisTidsskriftartikelForskningpeer review

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Opschoor, Anne ; van Dijk, Dick ; van der Wel, Michel. / Predicting volatility and correlations with Financial Conditions Indexes. I: Journal of Empirical Finance. 2014 ; Bind 29. s. 435-447.

Bibtex

@article{a025a16a2aae4ab3951fa222bf873368,
title = "Predicting volatility and correlations with Financial Conditions Indexes",
abstract = "We model the impact of financial conditions on asset market volatilities and correlations. We extend the Spline-GARCH model for volatility and DCC model for correlation to allow for inclusion of indexes that measure financial conditions. In our empirical application we consider daily stock returns of US deposit banks during the period 1994-2011, and proxy financial conditions by the Bloomberg Financial Conditions Index (FCI) which comprises the money, bond, and equity markets. We find that worse financial conditions are associated with both higher volatility and higher correlations between stock returns, especially during crises. Moreover, inclusion of the FCI in volatility and correlation modeling improves Value-at-Risk estimates, particularly at short horizons.",
keywords = "Bank holding companies, Dynamic correlations, Financial Conditions Indexes, Volatility modeling",
author = "Anne Opschoor and {van Dijk}, Dick and {van der Wel}, Michel",
year = "2014",
month = dec,
day = "1",
doi = "10.1016/j.jempfin.2014.10.003",
language = "English",
volume = "29",
pages = "435--447",
journal = "Journal of Empirical Finance",
issn = "0927-5398",
publisher = "Elsevier BV",

}

RIS

TY - JOUR

T1 - Predicting volatility and correlations with Financial Conditions Indexes

AU - Opschoor, Anne

AU - van Dijk, Dick

AU - van der Wel, Michel

PY - 2014/12/1

Y1 - 2014/12/1

N2 - We model the impact of financial conditions on asset market volatilities and correlations. We extend the Spline-GARCH model for volatility and DCC model for correlation to allow for inclusion of indexes that measure financial conditions. In our empirical application we consider daily stock returns of US deposit banks during the period 1994-2011, and proxy financial conditions by the Bloomberg Financial Conditions Index (FCI) which comprises the money, bond, and equity markets. We find that worse financial conditions are associated with both higher volatility and higher correlations between stock returns, especially during crises. Moreover, inclusion of the FCI in volatility and correlation modeling improves Value-at-Risk estimates, particularly at short horizons.

AB - We model the impact of financial conditions on asset market volatilities and correlations. We extend the Spline-GARCH model for volatility and DCC model for correlation to allow for inclusion of indexes that measure financial conditions. In our empirical application we consider daily stock returns of US deposit banks during the period 1994-2011, and proxy financial conditions by the Bloomberg Financial Conditions Index (FCI) which comprises the money, bond, and equity markets. We find that worse financial conditions are associated with both higher volatility and higher correlations between stock returns, especially during crises. Moreover, inclusion of the FCI in volatility and correlation modeling improves Value-at-Risk estimates, particularly at short horizons.

KW - Bank holding companies

KW - Dynamic correlations

KW - Financial Conditions Indexes

KW - Volatility modeling

U2 - 10.1016/j.jempfin.2014.10.003

DO - 10.1016/j.jempfin.2014.10.003

M3 - Journal article

AN - SCOPUS:84921409183

VL - 29

SP - 435

EP - 447

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

SN - 0927-5398

ER -