Abstract
Significant second-moment transmission effects and obvious time-varying patterns of correlation coefficients among major equity and currency markets in the US, Japan and the UK are found to exist. Such observations inspire the time-varying setting of dynamic conditional correlation coefficients in MGARCH models. On the other hand, the multivariate Student-t distribution is suitable for analysing the visible leptokurtosis that is common in financial markets. Both are important for international portfolio risk management. Thus, a comparison on the hedging efficiency of hypothetical portfolios consisting of stock and currency future positions is conducted in order to justify the multivariate Student-t distribution based on the DCC-MGARCH model.
Notes
4 For instance, Fama (Citation1965) claims that a stable Paretian distribution with a characteristic exponent less than two can be used to replace the normal setting. Kon (Citation1984) and Hull and White (Citation1998) assert that a discrete mixture of normal distributions can be used to explain the observed patterns of significant kurtosis and a positive skewness of daily data.
5 The detailed ADF test results for different specifications are not presented here for parsimony's sake. They are available from the authors on request.
6 The detailed statistical results are not presented here for the sake of parsimony. They are available from the authors on request.
7 For example, please refer to Hsuku
et al
. (Citation2006).
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