Projected dynamic conditional correlations

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• dc.contributor.author Llorens-Terrazas, Jordi
• dc.contributor.author Brownlees, Christian, 1979-
• dc.date.accessioned 2024-01-09T07:24:31Z
• dc.date.available 2024-01-09T07:24:31Z
• dc.date.issued 2023
• dc.description.abstract We propose a novel specification of the Dynamic Conditional Correlation (DCC) model based on an alternative normalization of the pseudo-correlation matrix called Projected DCC (Pro-DCC). Our modification consists in projecting, rather than rescaling, the pseudo-correlation matrix onto the set of correlation matrices in order to obtain a well defined conditional correlation matrix. A simulation study shows that projecting performs better than rescaling when the dimensionality of the correlation matrix is large. An empirical application to the constituents of the S&P 100 shows that the proposed methodology performs favorably to the standard DCC in an out-of-sample asset allocation exercise.
• dc.description.sponsorship I acknowledge support from the Spanish Ministry of Science and Technology (FPI Grant PRE2019-090839) Christian Brownlees acknowledges support from the Spanish Ministry of Science and Technology (Grant MTM2012-37195) and the Spanish Ministry of Economy and Competitiveness through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2011-0075).
• dc.format.mimetype application/pdf
• dc.identifier.citation Llorens-Terrazas J, Brownlees C. Projected dynamic conditional correlations. Int J Forecast. 2023;39:1761-76. DOI: 10.1016/j.ijforecast.2022.06.003
• dc.identifier.doi http://dx.doi.org/10.1016/j.ijforecast.2022.06.003
• dc.identifier.issn 0169-2070
• dc.identifier.uri http://hdl.handle.net/10230/58651
• dc.language.iso eng
• dc.publisher Elsevier
• dc.relation.ispartof International Journal of Forecasting. 2023;39:1761-76.
• dc.relation.projectID info:eu-repo/grantAgreement/ES/2PE/PRE2019-090839
• dc.relation.projectID info:eu-repo/grantAgreement/ES/3PN/PRE2019-090839
• dc.rights © 2022 The Author(s). Published by Elsevier B.V. on behalf of International Institute of Forecasters. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/4.0/
• dc.title Projected dynamic conditional correlations
• dc.type info:eu-repo/semantics/article
• dc.type.version info:eu-repo/semantics/publishedVersion