Advances and Applications in Statistics
Volume 62, Issue 1, Pages 79 - 95
(May 2020) http://dx.doi.org/10.17654/AS062010079 |
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THE TIME-VARYING CORRELATION ESTIMATOR USING THE NATURAL CUBIC SPLINE VOLATILITY
Jetsada Laipaporn and Phattrawan Tongkumchum
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Abstract: The time-varying correlation is an indicator used by financial analysts to assess the co-movement of financial time series. This study introduces the time-varying correlation estimator using the natural cubic spline volatility for estimating time-varying correlation. This estimator reveals the pattern of change in correlation and the simulation showed that it also provides more accurate estimates of the time-varying correlation than the rolling correlation estimator and the dynamic conditional correlation model. Furthermore, this estimator is practical for assessing the co-movement of the ASEAN-5 stock indices. The empirical result showed that the degree of time-varying correlation of the ASEAN-5 stock markets after 2007 was higher than the previous period indicating the stronger linkages and more integration of the ASEAN-5 stock markets. |
Keywords and phrases: co-movement, rolling correlation, DCC model.
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