Student-<i>t</i>distribution based VAR-MGARCH: an application of the DCC model on international portfolio risk management

Ku, Yuan-Hung Hsu

doi:10.1080/00036840600892894

Cited by 19 publications

(11 citation statements)

References 47 publications

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“…Source: Ku (2008) where ̅ is the unconditional correlation coefficient and the new time-varying conditional correlation coefficient is , , = , , / √ , , . Meanwhile, the returns on financial assets have often been documented to be fat-tailed or leptokurtic where a normal distribution assumption is not appropriate.…”

Section: Mgarch and DCCmentioning

confidence: 99%

Chapter 1 Investigating International Portfolio Diversification Opportunities for the Asian Islamic Stock Market Investors

Yildirim¹,

Masih²

2018

Management of Islamic Finance: Principle, Practice, and Performance

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The purpose of this chapter is to analyze the possible portfolio diversification opportunities between Asian Islamic market and other regions' Islamic markets; namely USA, Europe, and BRIC. This study makes the initial attempt to fill in the gaps of previous studies by focusing on the proxies of global Islamic markets to identify the correlations among those selected markets by employing the recent econometric methodologies such as multivariate generalized autoregressive conditional heteroscedastic-dynamic conditional correlations (MGARCH-DCC), maximum overlap discrete wavelet transform (MODWT), and the continuous wavelet transform (CWT). By utilizing the MGARCHDCC, this chapter tries to identify the strength of the time-varying correlation among the markets. However, to see the timescale dependent nature of these mentioned correlations, the authors utilized CWT. For robustness, the authors have applied MODWT methodology as well. The findings tend to indicate that the Asian investors have better portfolio diversification opportunities with the US markets, followed by the European markets. BRIC markets do not offer any portfolio diversification benefits, which may be explained partly by the fact that the Asian markets cover partially the same countries of BRIC markets, namely India and China. Considering the time horizon dimension, the results narrow down the portfolio diversification opportunities only to the short-term investment horizons. The very short-run investors (up to eight days only) can benefit through portfolio diversification, especially in the US and European markets. The above-mentioned results have policy implications for the Asian Islamic investors (e.g., Portfolio Management and Strategic Investment Management).

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Section: Mgarch and DCCmentioning

confidence: 99%

Chapter 1 Investigating International Portfolio Diversification Opportunities for the Asian Islamic Stock Market Investors

Yildirim¹,

Masih²

2018

Management of Islamic Finance: Principle, Practice, and Performance

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“…On the other hand, he found that the multivariate Student-t distribution is suitable for analyzing the visible leptokurtosis that is common innancial markets. us, he conducted comparison on the hedging e ciency of hypothetical portfolios consisting of stock and currency future positions in order to justify the multivariate Student-t distribution based on the DCC-MGARCH model [10]. Rozga and Arnerić theoretically presented the dependence between volatility persistence, kurtosis and degrees of freedom from Student's t-distribution in estimation alternative risk measures on simulated returns.…”

Section: Literature Reviewmentioning

confidence: 99%

EMPIRICAL ESTIMATION AND COMPARISON OF NORMAL AND STUDENT T LINEAR VaR ON THE BELGRADE STOCK EXCHANGE

Terzić¹

2014

Proceedings of the 1st International Scientific Conference - Sinteza 2014

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Abstract:In this paper we describe theoretical and empirical linear VaR for the cases where the stock portfolio returns and the risk factor returns follow a normal distribution and Student t distribution. The main aim of this study is to show the effect that leptokurtosis has on VaR estimate. Using the daily Belex 15 data from January 2011 to January 2014 we estimate 1-day Normal and Student t VaR for different significance levels. The results show that for low significance levels, the normality assumption can overestimate VaR if the return distribution is leptokurtic. On the other hand, for higher significance levels, the normality assumption can seriously underestimate VaR. In the case of Serbian stock market the assumption of Student's t-distribution leads to VaR estimates that are more representative of historical behavior of Belex 15 than normal linear VaR.

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“…Considering the characteristics of the analysed series, leptokurtic and non‐normally distributed residuals, with heavy tails (Table 1), we adopt here the strategy of Ku (2008), who in a study of hedge efficiency employed the GARCH model using a t Student distribution.…”

Section: Resultsmentioning

confidence: 99%

Conditional correlation and volatility between spot and futures markets for soybean and corn

et al. 2020

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This paper investigates the dynamics of volatility and conditional correlations between corn and soybean prices in the spot and futures markets. Faced with price and production risks, farmers must use all information available in their risk management process, both in their product's spot and futures markets, and in related products' markets, either domestic or foreign. Dynamic conditional correlation specifications with a bivariate GARCH model are employed, with data for Brazilian and U.S. markets in the period 2004-2017, during which several structural changes and extreme climate phenomena have occurred. We find the highest correlations between the corn and soybean spot markets, and evidence of spillovers in both products in the spot and futures markets. We also find that the financial crisis have significantly affected the relationship between the corn and soybean markets. We also find that in periods of increased conditional correlation between the soybean and corn markets, there is an increase in the optimal hedge ratio for risk management strategies involving corn futures contracts at B3 and Chicago Mercantile Exchange.

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Student-tdistribution based VAR-MGARCH: an application of the DCC model on international portfolio risk management

Cited by 19 publications

References 47 publications

Chapter 1 Investigating International Portfolio Diversification Opportunities for the Asian Islamic Stock Market Investors

Chapter 1 Investigating International Portfolio Diversification Opportunities for the Asian Islamic Stock Market Investors

EMPIRICAL ESTIMATION AND COMPARISON OF NORMAL AND STUDENT T LINEAR VaR ON THE BELGRADE STOCK EXCHANGE

Conditional correlation and volatility between spot and futures markets for soybean and corn

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