Stock and bond market interactions with level and asymmetry dynamics: An out-of-sample application

Goeij, Peter de; Marquering, Wessel

doi:10.1016/j.jempfin.2008.09.001

Cited by 19 publications

(4 citation statements)

References 38 publications

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“…(2006) showed that asymmetric dynamic conditional correlation (ADCC) GARCH model outclasses the DCC GARCH model with lower Bayesian Information Criterion (BIC) and higher log-likelihood value, and better adaptive to model the time-varying market integration. Besides, DCC GARCH does not account for asymmetries in conditional variances, covariances, and correlations, leading to an incorrect specification of the conditional variance-covariance matrix ( Cappiello et al., 2006 ; de Goeij and Marquering, 2009 ). Following Cappiello et al.…”

Section: Introductionmentioning

confidence: 99%

Futures market and the contagion effect of COVID-19 syndrome

Banerjee

2021

Finance Research Letters

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Section: Introductionmentioning

confidence: 99%

Futures market and the contagion effect of COVID-19 syndrome

Banerjee

2021

Finance Research Letters

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“…They found that not only variances, but also covariances, respond asymmetrically to return shocks. Furthermore, de Goeij and Marquering (2009) extended the asymmetric multivariate model of de Goeij and Marquering (2004) and incorporated level effects and cross-asymmetries in conditional variances and covariances. They showed that the level effect was significant for bond return volatility.…”

Section: Introductionmentioning

confidence: 99%

An economic evaluation of stock–bond return comovements with copula-based GARCH models

Lin

2012

Quantitative Finance

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Owing to their importance in asset allocation strategies, the comovements between the stock and bond markets have become an increasingly popular issue in financial economics. Moreover, the copula theory can be utilized to construct a flexible joint distribution that allows for skewness in the distribution of asset returns as well as asymmetry in the dependence structure between asset returns. Therefore, this paper proposes three classes of copula-based GARCH models to describe the time-varying dependence structure of stock-bond returns, and then examines the economic value of copula-based GARCH models in the asset allocation strategy. We compare their out-of-sample performance with other models, including the passive, the constant conditional correlation (CCC) GARCH and the dynamic conditional correlation (DCC) GARCH models. From the empirical results, we find that a dynamic strategy based on the GJR-GARCH model with Student-t copula yields larger economic gains than passive and other dynamic strategies. Moreover, a less risk-averse investor will pay higher performance fees to switch from a passive strategy to a dynamic strategy based on copula-based GARCH models.

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“…3 presents the evolution of the estimated correlation coefficients obtained from this model and shows that they vary considerably over time. This is especially important for the purpose of our research because optimal allocation is only relevant if conditional correlations fluctuate over time (de Goeij and Marquering 2009). Moreover, according to international portfolio diversification theory, the lower the extent of correlation between markets, the greater the benefits from international diversification.…”

Section: In-sample Resultsmentioning

confidence: 99%

Improving Diversification Opportunities for Socially Responsible Investors

Miralles-Quirós

Miralles‐Quirós

2015

J Bus Ethics

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Socially responsible investment (SRI) has grown enormously and has expanded globally in recent years. It allows SRI investors to reduce their portfolio risk assumptions through international diversification. In this context, the aim of this paper is twofold (i) to examine price and volatility linkages among the most representative SRI indexes for North America, Europe, and Asia-Pacific employing a multivariate approach and (ii) to provide the out-of-sample performance of an optimal portfolio constructed on the basis of time-varying return and volatility forecasts from this specification approach. Our overall results show that using this technique, it is possible to reduce risk and out-perform the naïve rule, which is usually employed in this type of investment. These findings are relevant not only for academics but also for practitioners, especially for professional managers of SRI portfolios.

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Stock and bond market interactions with level and asymmetry dynamics: An out-of-sample application

Cited by 19 publications

References 38 publications

Futures market and the contagion effect of COVID-19 syndrome

Futures market and the contagion effect of COVID-19 syndrome

An economic evaluation of stock–bond return comovements with copula-based GARCH models

Improving Diversification Opportunities for Socially Responsible Investors

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