Dynamic conditional correlation analysis of financial market interdependence: An application to Thailand and Indonesia

Kuper, Gerard H.; Lestano, [No Value]

doi:10.1016/j.asieco.2007.03.007

Cited by 43 publications

(28 citation statements)

References 37 publications

(33 reference statements)

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“…The DCC model of (2002) investigates the conditional correlations in stock, bond and foreign exchange markets in USA and France. The model has been applied in several asset interactions, such as the conditional correlations across stock markets by Billio et al (2006); across stock and foreign exchange markets by Kuper and Lestano (2007) and across bond and stock markets by Dean and Faff (2001). These authors find evidence of time-varying conditional correlations.…”

Section: Brief Review Of the Literaturementioning

confidence: 93%

Investigation of Socially Responsible Investment Markets (SRI) Using Dynamic Conditional Correlation (DCC) Method: Implications for Diversification

T.¹

2010

Journal of Mathematics and Statistics

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Problem statement: Over the last ten years there has been a phenomenal growth in the amount of funds placed in SRI globally estimated to be around US$6.5 trillion while around US$55 billion in the Australian market. Accurate knowledge of correlation of the Australian SRI market with other SRI markets overseas is crucially important for Australian (SRI) investors for international portfolio diversification since portfolio diversification theory posits that the lower (higher) the correlation between markets, the higher (lower) the gains to be made. The study examines the relationship of the Australian SRI market with fourteen other markets-Canada, Denmark, France, Germany, Hong Kong, Ireland, Japan, Netherlands, Norway, South Africa, Sweden, Switzerland, United Kingdom and the United States. Approach: The relationships of the Australian Socially Responsible Investment (SRI) market with other SRI markets worldwide during the period 1994-2009 are examined based on the dynamic conditional correlation multivariate GARCH model (DCCMVGarch). In the DCC method, the multivariate conditional variance estimation is simplified by estimating univariate GARCH models for each market. Using the transformed residuals resulting from the first stage, the authors can estimate a conditional correlation estimator. The standard errors for the first stage parameters remain while the standard errors for the correlation parameters are modified. Results: Our results showed that the Australian market experienced a surge in correlation with all other markets during the global financial crisis. During the period of study, the correlation of Australia with Canada, Denmark, Norway and the United Kingdom increased over time while its correlation with other countries remained stationary. This implies that the Australian SRI market is becoming more integrated with those of Canada, Denmark, Norway and the United Kingdom. Therefore, these overseas markets provide less portfolio diversification benefits to Australian SRI investors while the other markets still offer some opportunities. Conclusion/Recommendations: This study examined the relationship of the Australian Socially Responsible Investment (SRI) market with other SRI markets worldwide during the period 1994-2009 based on dynamic conditional correlation multivariate GARCH model that provides accurate correlations over time that can be incorporated into portfolio models. Australian SRI market was analyzed with fourteen other markets around the world such as Canada, Denmark, France, Germany, Hong Kong, Ireland, Japan, Netherlands, Norway, South Africa, Sweden, Switzerland, United Kingdom and the United States. The results showed that the Australian market experienced a spike in correlation with the other markets during periods of market distress; for example, during the recent global financial crisis. In spite of the fluctuations in the correlations of Australian with the other markets the correlations generally remain below 1. Australia's correlation with Denmark, Norway and Japan in...

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Section: Brief Review Of the Literaturementioning

confidence: 93%

Investigation of Socially Responsible Investment Markets (SRI) Using Dynamic Conditional Correlation (DCC) Method: Implications for Diversification

T.¹

2010

Journal of Mathematics and Statistics

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“…Model DCC memastikan matriks korelasi bersyarat yang bergantung pada masa adalah positif untuk setiap titik masa. Tambahan pula, bilangan parameter bertambah secara linear dan oleh itu model tersebut secara relatifnya adalah lebih parsimoni (Kuper & Lestano 2007). Model DCC dapat dianggar dengan memaksimumkan fungsi kebolehjadian seperti berikut:…”

Section: Pengenalanunclassified

Kemeruapan Bersyarat dan Korelasi Dinamik Pasaran Saham ASEAN

Nor¹,

Kogid

Sarmidi³

2015

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“…Common movements in the capital market are mostly based on the exploration of variables (Van Horen et al, 2006), while a multivariable generalised autoregression conditional heteroscedasticity (GARCH) model-supported dynamic conditional correlation (DCC) estimation is a common tool for currency-related analyses (Kuper and Lestano, 2007;Babetskaia-Kukharchuk et al, 2008;Stavárek, 2009). The contagion literature is supported by experiences of the recent crisis, which presented unique and enormous changes in currency correlations (Muller and Verschoor, 2009;Haile, and Pozo, 2008).…”

Section: Defi Nitions and Methodologymentioning

confidence: 99%

The Euro Crisis and Contagion among Central and Eastern European Currencies: Recommendations for Avoiding Lending in a Safe Haven Currency such as CHF

Kiss¹,

Schuszter²

2015

Prague Economic Papers

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Abstract:This study analyses the Czech, Hungarian, and Polish currencies by examining the statistical characteristics of the Swiss franc as well as the ECB monetary policy in order to indicate shocks in these markets between 2002 and 2013. The abundance of monetary easing decisions can be used as a viable sign of market misbehaviour in addition to the low probability of extreme exchange rate fluctuations. Indeed, the temporal distribution of extreme currency fluctuations provides vital information about the nature of the recent crisis. Contagions can be defined as increased correlations during periods of crisis, while divergence means a significant decrease in this regard. Methodologically, common movements in this study were calculated by using DCC-GARCH modelling. The findings of this study underline the special features of the Swiss franc exchange rate, notably that its extreme fluctuations can be managed by using swap agreements and that it tended towards divergences during the crisis era. These results support the idea of avoiding lending in reserve currencies.

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Dynamic conditional correlation analysis of financial market interdependence: An application to Thailand and Indonesia

Cited by 43 publications

References 37 publications

Investigation of Socially Responsible Investment Markets (SRI) Using Dynamic Conditional Correlation (DCC) Method: Implications for Diversification

Investigation of Socially Responsible Investment Markets (SRI) Using Dynamic Conditional Correlation (DCC) Method: Implications for Diversification

Kemeruapan Bersyarat dan Korelasi Dinamik Pasaran Saham ASEAN

The Euro Crisis and Contagion among Central and Eastern European Currencies: Recommendations for Avoiding Lending in a Safe Haven Currency such as CHF

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