Dynamic conditional correlation among EU countries: a DCC-MIDAS approach
Dokumenttyp: Working paper
This paper aims to examine the dynamic conditional correlation structure for European countries. Three major equity markets of Europe, namely, the UK, Germany and France have been used in the analysis. The financial integration was investigated through a time-varying correlation structure. A recently proposed method of DCC-MIDAS (Dynamic Conditional Correlation - Mixed Data Sampling) was implemented to study the integration. The preliminary results for the three countries show that all the parameters are significant at the 5\% level. There are obvious long-term term and short-term components in the correlations. The findings indicate a substantial increase in the correlation for all markets since the introduction of the fixed currency regime. The relationships between volatility and correlation were also investigated and a significant increase was seen. All the indicators for long- and short-term components turned out to be positive, suggesting volatility and correlation move in the same direction.
- Probability Theory and Statistics