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Exceedance Correlation Tests for Financial Returns

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  • Yi-Ting Chen

Abstract

It has become popular to explore the static conditional correlation structure of financial returns by using the exceedance correlations or similar measures. In this article, we propose a generalized test which is applicable to checking various conditional correlation structures in a model-free context, and apply a newly developed method to establishing a simple test for evaluating the adequacy of a model in explaining the conditional correlations. We demonstrate that our tests can generate useful alternatives to existing exceedance correlation tests, and provide a simulation study and an empirical example to show the validity and applicability of our tests.

Suggested Citation

  • Yi-Ting Chen, 2016. "Exceedance Correlation Tests for Financial Returns," Journal of Financial Econometrics, Oxford University Press, vol. 14(3), pages 581-616.
    • Handle: RePEc:oup:jfinec:v:14:y:2016:i:3:p:581-616.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbv016
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    Cited by:

    1. O‐Chia Chuang & Xiaojun Song & Abderrahim Taamouti, 2022. "Testing for Asymmetric Comovements," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(5), pages 1153-1180, October.

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