Llorens-Terrazas, JordiBrownlees, Christian, 1979-2024-01-092024-01-092023Llorens-Terrazas J, Brownlees C. Projected dynamic conditional correlations. Int J Forecast. 2023;39:1761-76. DOI: 10.1016/j.ijforecast.2022.06.0030169-2070http://hdl.handle.net/10230/58651We 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.application/pdfeng© 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/).info:eu-repo/semantics/articlehttp://dx.doi.org/10.1016/j.ijforecast.2022.06.003info:eu-repo/semantics/openAccess