Arbeitspapier
Predicting Covariance Matrices with Financial Conditions Indexes
We model the impact of financial conditions on asset market volatility and correlation. We propose extensions of (factor-)GARCH models for volatility and DCC models for correlation that allow for including indexes that measure financial conditions. In our empirical application we consider daily stock returns of US deposit banks during the period 1994-2011, and proxy financial conditions by the Bloomberg Financial Conditions Index (FCI) which comprises the money, bond, and equity markets. We find that worse financial conditions are associated with both higher volatility and higher average correlations between stock returns. Especially during crises the additional impact of the FCI indicator is considerable, with an increase in correlations by 0.15. Moreover, including the FCI in volatility and correlation modeling improves Value-at-Risk forecasts, particularly at short horizons.
- Sprache
-
Englisch
- Erschienen in
-
Series: Tinbergen Institute Discussion Paper ; No. 13-113/III
- Klassifikation
-
Wirtschaft
Financial Forecasting and Simulation
Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
Financial Markets and the Macroeconomy
- Thema
-
Dynamic correlations
Volatility modeling
Financial Conditions Indexes
Bank holding companies
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Opschoor, Anne
van Dijk, Dick
van der Wel, Michel
- Ereignis
-
Veröffentlichung
- (wer)
-
Tinbergen Institute
- (wo)
-
Amsterdam and Rotterdam
- (wann)
-
2013
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Opschoor, Anne
- van Dijk, Dick
- van der Wel, Michel
- Tinbergen Institute
Entstanden
- 2013
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