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A Regime Switching for Dynamic Conditional Correlation and GARCH: Application to Agricultural Commodity Prices and Market Risks

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Integrated Uncertainty in Knowledge Modelling and Decision Making (IUKM 2018)

Part of the book series: Lecture Notes in Computer Science ((LNAI,volume 10758))

Abstract

Time varying correlations are often estimated with dynamic conditional correlation, generalized autoregressive conditional heteroskedasticity (DCC-GARCH) models which are based on a linear structure in both GARCH and DCC parts. In this paper, a Markov regime-switching DCC-GARCH (MS-DCC-GARCH) model is proposed in order to capture the time variations and structural breaks in both GARCH and DCC processes. The parameter estimates are driven by first order Markov chain. We provide simulation study to examine the accuracy of the model and apply it for empirical analysis of the dynamic volatility correlations between commodity prices and market risks. The proposed model is clearly preferred in terms of likelihood, Akaike information criterion (AIC), and likelihood ratio test.

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Author information

Authors and Affiliations

  1. Faculty of Economics, Ramkhamhaeng University, Bangkok, Thailand

    Benchawanaree Chodchuangnirun

  2. Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand

    Woraphon Yamaka

  3. Department of Agricultural Economy and Development, Faculty of Agriculture, Chiang Mai University, Chiang Mai, Thailand

    Chatchai Khiewngamdee

  4. Center of Excellence in Econometrics, Chiang Mai University, Chiang Mai, Thailand

    Woraphon Yamaka & Chatchai Khiewngamdee

Authors
  1. Benchawanaree Chodchuangnirun
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  2. Woraphon Yamaka
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  3. Chatchai Khiewngamdee
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Corresponding author

Correspondence to Chatchai Khiewngamdee .

Editor information

Editors and Affiliations

  1. Japan Advanced Institute of Science and Technology, Nomi, Japan

    Van-Nam Huynh

  2. Osaka University, Osaka, Japan

    Masahiro Inuiguchi

  3. Hanoi National University of Education, Hanoi, Vietnam

    Dang Hung Tran

  4. Université de Technologie de Compiègne, Compiègne, France

    Thierry Denoeux

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Chodchuangnirun, B., Yamaka, W., Khiewngamdee, C. (2018). A Regime Switching for Dynamic Conditional Correlation and GARCH: Application to Agricultural Commodity Prices and Market Risks. In: Huynh, VN., Inuiguchi, M., Tran, D., Denoeux, T. (eds) Integrated Uncertainty in Knowledge Modelling and Decision Making. IUKM 2018. Lecture Notes in Computer Science(), vol 10758. Springer, Cham. https://doi.org/10.1007/978-3-319-75429-1_24

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  • DOI: https://doi.org/10.1007/978-3-319-75429-1_24

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-75428-4

  • Online ISBN: 978-3-319-75429-1

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