Advanced search
1 file | 3.20 MB Add to list

The variance implied conditional correlation

(2020) EUROPEAN JOURNAL OF FINANCE. 26(2-3). p.200-222
Author
Organization
Abstract
We apply univariate GARCH models to construct a computationally simple filter for estimating the conditional correlation matrix of asset returns. The proposed Variance Implied Conditional Correlation (VICC) exploits the polarization result that links the correlation between two standardized variables with the variances of linear combinations thereof. In a Monte Carlo study, we show that the VICC yields accurate correlation estimates for common choices of the correlation dynamics. We also provide an empirical application to cross hedging that confirms the effectiveness of the VICC.
Keywords
Economics, Econometrics and Finance (miscellaneous), Conditional correlation, cross hedging, dynamic conditional correlation (DCC), GARCH, hedge ratio, regularization, GARCH, DISTRIBUTIONS, FUTURES, MODELS

Downloads

  • (...).pdf
    • full text (Published version)
    • |
    • UGent only
    • |
    • PDF
    • |
    • 3.20 MB

Citation

Please use this url to cite or link to this publication:

MLA
Algaba, Andres, et al. “The Variance Implied Conditional Correlation.” EUROPEAN JOURNAL OF FINANCE, vol. 26, no. 2–3, 2020, pp. 200–22.
APA
Algaba, A., Boudt, K., & Vanduffel, S. (2020). The variance implied conditional correlation. EUROPEAN JOURNAL OF FINANCE, 26(2–3), 200–222.
Chicago author-date
Algaba, Andres, Kris Boudt, and Steven Vanduffel. 2020. “The Variance Implied Conditional Correlation.” EUROPEAN JOURNAL OF FINANCE 26 (2–3): 200–222.
Chicago author-date (all authors)
Algaba, Andres, Kris Boudt, and Steven Vanduffel. 2020. “The Variance Implied Conditional Correlation.” EUROPEAN JOURNAL OF FINANCE 26 (2–3): 200–222.
Vancouver
1.
Algaba A, Boudt K, Vanduffel S. The variance implied conditional correlation. EUROPEAN JOURNAL OF FINANCE. 2020;26(2–3):200–22.
IEEE
[1]
A. Algaba, K. Boudt, and S. Vanduffel, “The variance implied conditional correlation,” EUROPEAN JOURNAL OF FINANCE, vol. 26, no. 2–3, pp. 200–222, 2020.
@article{8642249,
  abstract     = {We apply univariate GARCH models to construct a computationally simple filter for estimating the conditional correlation matrix of asset returns. The proposed Variance Implied Conditional Correlation (VICC) exploits the polarization result that links the correlation between two standardized variables with the variances of linear combinations thereof. In a Monte Carlo study, we show that the VICC yields accurate correlation estimates for common choices of the correlation dynamics. We also provide an empirical application to cross hedging that confirms the effectiveness of the VICC.},
  author       = {Algaba, Andres and Boudt, Kris and Vanduffel, Steven},
  issn         = {1351-847X},
  journal      = {EUROPEAN JOURNAL OF FINANCE},
  keywords     = {Economics,Econometrics and Finance (miscellaneous),Conditional correlation,cross hedging,dynamic conditional correlation (DCC),GARCH,hedge ratio,regularization,GARCH,DISTRIBUTIONS,FUTURES,MODELS},
  language     = {eng},
  number       = {2-3},
  pages        = {200--222},
  title        = {The variance implied conditional correlation},
  url          = {http://dx.doi.org/10.1080/1351847x.2019.1615524},
  volume       = {26},
  year         = {2020},
}

Altmetric
View in Altmetric
Web of Science
Times cited: