Testing constancy of correlation and other specifications of the BGARCH model with an application to international equity returns

Anil K. Bera, Sangwhan Kim

Research output: Contribution to journalArticlepeer-review

Abstract

One of the main ingredients in forming an international portfolio is the correlation matrix. The correlations represent the degree of interdependence across markets. With the recent globalization of markets and increased volatility, we can expect these correlations to change over time, and quite possibly to go up. However, the standard practice in modeling asset return dynamics is to assume constant correlation. This parameterization is simple, and it involves a relatively small number of parameters. However, the validity of this assumption remains an empirical question. This paper is concerned with developing a formal test for constancy of correlation, and applying it to financial markets of the USA, Japan, Germany, the UK, France and Italy.

Original languageEnglish (US)
Pages (from-to)171-195
Number of pages25
JournalJournal of Empirical Finance
Volume9
Issue number2
DOIs
StatePublished - 2002

Keywords

  • Information matrix test
  • Score test
  • Stock returns
  • Studentizing
  • Time-varying correlations

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Testing constancy of correlation and other specifications of the BGARCH model with an application to international equity returns'. Together they form a unique fingerprint.

Cite this