Dynamic Conditional Correlation with Exogenous Variables - Case Study of Taiwan Stocks Indices

• Main Authors: Chen, Tzu-Ting, 陳姿廷
• Other Authors: Li, Meng-Feng
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/62403275382652231963

碩士 === 國立臺北大學 === 統計學系 === 99 === Many researches found out that financial markets are connected with each other. In early researches into financial merchandise’s relations between different markets, that were mostly evaluated by constant correlation coefficient model. But actually either financial merchandise or relationships between markets were time varying. 　　As a result, this research combines Vector Autoregressive (VAR) model and Dynamic Conditional Correlation (DCC) model proposed by Engle and Sheppard (2001) to investigate how is Taiwan equity market influenced by macroeconomic factors, and also discusses the dynamic correlation in different fields of stocks. Furthermore, the changes of correlations resulting from the major financial events are statistically significant during the past 10 years. Through correlations, variances and covariance structural, we figure out the dynamic correlations in different fields of Taiwan stocks. 　　This thesis is focus on the dynamic interdependence among four fields of Taiwan equity markets by taking price indexes as exogenous variables in consideration, in order to eliminate the effect of price indexes to stocks. The four kinds of equities are financial, construction, electronics and food industry. Empirical results show that the relationship between financial and construction is the highest, and the lowest one is food and electronics. That means construction and electronics are highly financial-orientated industries. Besides, the most important finding is that correlation coefficients of the four stocks are significantly changing over time. In addition, comparing CRB price index with CPI price index, find out that the model with CRB as exogenous variable is better fitting than the CPI model, which indicates that if the model contains price indexes as exogenous variables, the model will be fitted better than without exogenous variables. Because of adding these variables can eliminate its disturbance to stocks, and then coefficients among stocks can be estimated accurately. 　　 Moreover, from picturing the dynamic conditional correlations between each stocks, such negative events like subprime mortgages crisis and the bankruptcy of Lehman Brothers effect Taiwan most, which leads to a big drop in stocks ‘correlation about three months long. However, if it happens to the events as imported inflation and quantitative easing monetary policy, which raises the correlations between them. Besides, the effecting periods of time vary from event to event. Since the comovement among Taiwan stock market becomes significantly affected by financial crisis, and the model with exogenous variable is more accurate between theory and real world. As a result, investors should take important financial events into account on spreading their risks and asset allocation. Keyword : Price Index, DCC, Stock