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Student-t distribution based VAR-MGARCH: an application of the DCC model on international portfolio risk management

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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.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840600892894

Affiliations: Department of Financial Operations, National Kaohsiung First University of Science and Technology, Nantz District, Kaohsiung 811, Taiwan, R.O.C.

Publication date: July 1, 2008

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