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A component model for dynamic correlations
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DOI：10.1016/j.jeconom.2011.02.013.png)
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Abstract
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We propose a model of dynamic correlations with a short- and long-run component specification, by extending the idea of component models for volatility. We call this class of models DCC-MIDAS. The key ingredients are the Engle (2002) DCC model, the Engle and Lee (1999) component GARCH model replacing the original DCC dynamics with a component specification and the Engle et al. (2006) GARCHMIDAS 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, and provide extensive empirical evidence that supports the model's specification. (C) 2011 Elsevier B.V. All rights reserved.
Keywords:
Dynamic correlations
Forecasting
Mixed data sampling
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