Article ID Journal Published Year Pages File Type
998343 International Journal of Forecasting 2011 18 Pages PDF
Abstract

This paper generalizes the Dynamic Conditional Correlation (DCC) model of Engle (2002), incorporating a flexible non-Gaussian distribution based on Gram-Charlier expansions. The resulting semi-nonparametric-DCC (SNP-DCC) model allows estimation in two stages and deals with the negativity problem which is inherent in truncated SNP densities. We test the performance of a SNP-DCC model with respect to the (Gaussian)-DCC through an empirical application of density forecasting for portfolio returns. Our results show that the proposed multivariate model provides a better in-sample fit and forecast of the portfolio returns distribution, and thus is useful for financial risk forecasting and evaluation.

Related Topics
Social Sciences and Humanities Business, Management and Accounting Business and International Management
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