{"title":"Managing portfolio risk during crisis times: A dynamic conditional correlation perspective","authors":"Hanyu Zhang , Alfonso Dufour","doi":"10.1016/j.qref.2024.02.002","DOIUrl":null,"url":null,"abstract":"<div><p>In this paper, we examine correlations between major European government bonds during the sovereign debt crisis. We apply an intraday Dynamic Conditional Correlation (DCC) model to the high-frequency quote data of the MTS market. We find that the Italian and Spanish government bonds become less correlated with other countries’ debts and the correlation between the two countries’ debts fluctuates heavily over time, ranging from 0.1 to 0.9. The Securities Markets Programme of the ECB is successful in restoring the market confidence for the integrity of the Eurozone, increasing the correlations towards the level before the crisis. In addition, we examine four different methods for computing and forecasting intraday VaR, namely, historical simulation, the Constant Conditional Correlation (CCC) model, the bivariate DCC model, and the multivariate DCC model estimated by composite likelihood. We demonstrate that the bivariate DCC model is most capable of forecasting intraday VaR for the tail of the distribution.</p></div>","PeriodicalId":47962,"journal":{"name":"Quarterly Review of Economics and Finance","volume":null,"pages":null},"PeriodicalIF":2.9000,"publicationDate":"2024-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Quarterly Review of Economics and Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S106297692400019X","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
In this paper, we examine correlations between major European government bonds during the sovereign debt crisis. We apply an intraday Dynamic Conditional Correlation (DCC) model to the high-frequency quote data of the MTS market. We find that the Italian and Spanish government bonds become less correlated with other countries’ debts and the correlation between the two countries’ debts fluctuates heavily over time, ranging from 0.1 to 0.9. The Securities Markets Programme of the ECB is successful in restoring the market confidence for the integrity of the Eurozone, increasing the correlations towards the level before the crisis. In addition, we examine four different methods for computing and forecasting intraday VaR, namely, historical simulation, the Constant Conditional Correlation (CCC) model, the bivariate DCC model, and the multivariate DCC model estimated by composite likelihood. We demonstrate that the bivariate DCC model is most capable of forecasting intraday VaR for the tail of the distribution.
期刊介绍:
The Quarterly Review of Economics and Finance (QREF) attracts and publishes high quality manuscripts that cover topics in the areas of economics, financial economics and finance. The subject matter may be theoretical, empirical or policy related. Emphasis is placed on quality, originality, clear arguments, persuasive evidence, intelligent analysis and clear writing. At least one Special Issue is published per year. These issues have guest editors, are devoted to a single theme and the papers have well known authors. In addition we pride ourselves in being able to provide three to four article "Focus" sections in most of our issues.