Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/144439 
Year of Publication: 
2012
Series/Report no.: 
NBB Working Paper No. 227
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
We propose a parsimonious regime switching model to characterize the dynamics in the volatilities and correlations of US deposit banks' stock returns over 1994-2011. A first innovative feature of the model is that the within-regime dynamics in the volatilities and correlation depend on the shape of the Student t innovations. Secondly, the across-regime dynamics in the transition probabilities of both volatilities and correlations are driven by macro-financial indicators such as the Saint Louis Financial Stability index, VIX or TED spread. We find strong evidence of time-variation in the regime switching probabilities and the within-regime volatility of most banks. The within-regime dynamics of the equicorrelation seem to be constant over the period.
Document Type: 
Working Paper

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