Please use this identifier to cite or link to this item: https://hdl.handle.net/20.500.14279/10963
Title: Neglecting structural breaks when estimating and valuing dynamic correlations for asset allocation
Authors: Halunga, Andreea G. 
Savva, Christos S. 
Major Field of Science: Social Sciences
Field Category: Economics and Business
Keywords: Asset allocation;Multivariate GARCH;Spurious estimation;Structural breaks
Issue Date: 3-Jul-2019
Source: Econometric Reviews, 2019, vol. 38, no. 6, pp. 660-678
Volume: 38
Issue: 6
Start page: 660
End page: 678
Journal: Econometric Reviews 
Abstract: This paper assesses the econometric and economic value consequences of neglecting structural breaks in dynamic correlation models and in the context of asset allocation framework. It is shown that changes in the parameters of the conditional correlation process can lead to biased estimates of persistence. Monte Carlo simulations reveal that short-run persistence is downward biased while long-run persistence is severely upward biased, leading to spurious high persistence of shocks to conditional correlation. An application to stock returns supports these results and concludes that neglecting such structural shifts could lead to misleading decisions on portfolio diversification, hedging, and risk management.
URI: https://hdl.handle.net/20.500.14279/10963
ISSN: 07474938
DOI: 10.1080/07474938.2017.1411431
Rights: © Taylor & Francis
Type: Article
Affiliation : University of Bath 
Cyprus University of Technology 
Publication Type: Peer Reviewed
Appears in Collections:Άρθρα/Articles

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