Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87165
Authors: 
Opschoor, Anne
van Dijk, Dick
van der Wel, Michel
Year of Publication: 
2013
Series/Report no.: 
Tinbergen Institute Discussion Paper 13-113/III
Abstract: 
We model the impact of financial conditions on asset market volatility and correlation. We propose extensions of (factor-)GARCH models for volatility and DCC models for correlation that allow for including indexes that measure financial conditions. In our empirical application we consider daily stock returns of US deposit banks during the period 1994-2011, and proxy financial conditions by the Bloomberg Financial Conditions Index (FCI) which comprises the money, bond, and equity markets. We find that worse financial conditions are associated with both higher volatility and higher average correlations between stock returns. Especially during crises the additional impact of the FCI indicator is considerable, with an increase in correlations by 0.15. Moreover, including the FCI in volatility and correlation modeling improves Value-at-Risk forecasts, particularly at short horizons.
Subjects: 
Dynamic correlations
Volatility modeling
Financial Conditions Indexes
Bank holding companies
JEL: 
G17
G23
E44
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
737.25 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.