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2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin >
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http://purl.umn.edu/49370
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| Title: | A State Dependent Regime Switching Model of Dynamic Correlations |
| Authors: | Tejeda, Hernan A.
Goodwin, Barry K.
Pelletier, Denis |
| Authors (Email): | Tejeda, Hernan A. (hatejeda@ncsu.edu)
Goodwin, Barry K. (barry_goodwin@ncsu.edu)
Pelletier, Denis (denis_pelletier@ncsu.edu) |
| Keywords: | dynamic correlations
regime switching
state dependent probabilities
thresholds
spillovers |
| Issue Date: | 2009 |
| Series/Report no.: | Selected Paper
612757 |
| Abstract: | We extend the Regime Switching for Dynamic Correlations (RSDC) model by Pelletier (Journal of Econometrics, 2006), to determine the effect of underlying fundamental variables in the evolution of the dynamic correlations between multiple time series. By introducing state dependent transition probabilities to the switching process between different regimes - governed by a Markov chain, we are able to identify potential thresholds and spillover effects in the dynamic process. In addition, asymmetric correlations between the series are determined. We simulate data for multiple series and find an initial better fit of state dependent transition probabilities, versus constant transition probabilities, for the regime switching model. Capturing more precisely the dynamic interrelationships between multiple series or markets conveys many benefits including - potential efficiency gains from related operations, determining the effects of shocks from related variables, as well as improvement in hedging operations. |
| Notes: | Replaced with revised version of paper 07/29/09. |
| URI: | http://purl.umn.edu/49370 |
| Institution/Association: | Agricultural and Applied Economics Association>2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin |
| Total Pages: | 44 |
| Collections: | 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin
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| PaperMilwaukee09_paperALL.pdf | | 2147Kb | PDF | View/Open |
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