Dynamic Conditional Correlation Model-an Analysis Between Taiwan and US Stock Market

• Main Authors: An-Lin Chen, 陳安琳
• Other Authors: Yu-Ren Tzeng
• Format: Others
• Language: en_US
• Published: 2007
• Online Access: http://ndltd.ncl.edu.tw/handle/66371516062615337877

碩士 === 國立臺灣大學 === 財務金融學研究所 === 95 === The correlation between different assets is gaining more and more importance toward the area of risk management. In this research, the dynamic conditional correlation model proposed by Engle is used to conduct an empirical analysis between the NASDSQ and the Taiwan stock market. The DCC model shows strong sensitivity when using different correlation parameters. The sample is accepted under the test of constant, but a nine-year constant correlation is economically insensible, so the whole sample of nine-year has been divided into nine sub-periods for model estimation. Aside from instantaneous correlation, the cross correlation also plays a role in risk management and thus the cross correlation function is conducted. A minimum variance portfolio was built to measure the performance based on different correlation estimates, the results show that a constant correlation based performance is even better than a dynamic correlation based performance.