Economic value of modeling covariance asymmetry for mixed-asset portfolio diversifications

Can fiat currencies really hedge Bitcoin? Evidence from dynamic short-term perspective

“…We also choose to employ the ADCC-GARCH model developed by Cappiello et al ( 2006 ). The selection of such model is motivated by the findings of some researchers such as Zhou and Nicholson ( 2015 ) and Badshah ( 2018 ). These findings indicate that modeling covariance asymmetry between based on the ADCC model indicates that conditional volatility and correlations between returns increase more after negative return shocks than after positive shocks with the same scale.…”

Diversification and the benefits of using returns standardized by range‐based volatility estimators

“…In our case, we opt for using the Asymmetric Dynamic Conditional Correlation GARCH model proposed by Cappiello, Engle, and Sheppard (2006). The choice of this model is based on the results of Donleavy (2009), Kalotychou, Staikouras, andZhao (2014), Zhou and Nicholson (2015), Yuan et al (2016), and Badshah (2018) who show that modelling covariance asymmetry on the basis of the ADCC model contributes significantly to the economic value of the model due to the fact that conditional volatility, and the correlation of financial returns, tends to rise more after negative return shocks than after positive ones of the same size. The VAR Asymmetric Dynamic Conditional Correlation GARCH (VAR-ADCC-GARCH) model estimation is performed using a two-step approach following Engle (2002).…”

Asset Allocation Brewed Accross African Stock Markets

“…There has been several studies on the need and benefits of portfolio diversification (Gaudecker, 2015;Levy and Levy, 2015;Zhou and Nicholson, 2015;Brandtner, 2013;Hung, Liu, and Tsai, 2012;Amenc and Martellini, 2011;Goetzmann and Kumar, 2008;De Santis and Gerard, 1997;Meric and Meric, 1989). Zhou and Nicholson (2015) constructed a diversified portfolio across 3 asset classes in the US economy.…”

“…Zhou and Nicholson (2015) constructed a diversified portfolio across 3 asset classes in the US economy. They found that by modelling a covariance asymmetry as a result of the asymmetric response correlation and volatility has possible shocks that could occur in returns, US investors tend to obtain significant gains on a diversified portfolio across these asset classes.…”