A Study on the Flexible Dynamic Conditional Correlation of Financial Products

• Main Authors: CHANG, HSUAN, 張瑄
• Other Authors: LI, MENG-FENG
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/40006273330368930853

碩士 === 國立臺北大學 === 統計學系 === 98 === Recently there are variety of financial products available for people in Taiwan to manage their property. Naturally, pursuing high return definitely has been the mutual objective for all investors; however, we all know that the return is always difficult to be controlled well and high return usually accompany high risk as well. Therefore, risk hedging passes has gradually become an important issue and instrument investors would not miss. If investors could know the relation to the returns of different financial products and make use of its character to predict returns and do dollar-cost averaging assets allocation; it may help them to obtain optimal profits or reduce the possible risks under a suitable hedging operation. The previous researches were adopted constant correlation coefficients to probe the relative level among the returns of financial products or different markets, but this method wasn’t consistent with the fact that the correlation coefficients of products or markets always change continuously with the time. Hence, this research applied the Flexible Dynamic Conditional Correlation (FDCC) model, proposed by Monica et al. (2006) and designed to reduce the number of parameters and reserve the limitation of parameters of the Dynamic Conditional Correlation (DCC) model, to investigate the dynamic correlation of stocks within the same sector or between different sectors of Taiwan stock market and expect the results of this research could be applied to the hedging strategy. There are some findings of empirical study, including firstly evaluate the relevant change among individual stock return by adopting the dynamic conditional correlation model would be more suitable than the constant conditional correlation model. Secondly, the dynamic correlation coefficient of individual stocks in the same sector would be higher than that in different sectors. Thirdly, when stock market was shocked by serious incidents, the correlation coefficient among individual stocks would increase progressively and the impact particularly on individual stocks in the same sector would be greater than that in different sectors. Finally, the correlation coefficient among individual stocks was differently shocked by the dissimilar incidents on the basis of the different length of time.