Evaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares
This paper analyses the time-varying conditional correlations between Chinese A and B share returns using the Dynamic Conditional Correlation (DCC) model of Engle [Engle, R.F. (2002), "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteros...
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| Format: | Journal Article |
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Elsevier BV
2008
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| Online Access: | http://hdl.handle.net/20.500.11937/32080 |
| _version_ | 1848753562677411840 |
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| author | Da Veiga, Bernardo Chan, Felix McAleer, M. |
| author_facet | Da Veiga, Bernardo Chan, Felix McAleer, M. |
| author_sort | Da Veiga, Bernardo |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | This paper analyses the time-varying conditional correlations between Chinese A and B share returns using the Dynamic Conditional Correlation (DCC) model of Engle [Engle, R.F. (2002), "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models", Journal of Business and Economic Statistics, 20, 339-350.]. The results show that the conditional correlations increased substantially following the B share market reform, whereby Chinese investors were permitted to purchase B shares. However, this increase in correlations was found to have begun well before the B share market reform. This result has significant implication relating to the structure of the information flow between the markets for the two classes of shares. Value-at-Risk (VaR) threshold forecasts are used to analyse the importance of accommodating dynamic conditional correlations between Chinese A and B shares, and thus reflects the impact of the changes in information flow on the risk evaluation of a diversified portfolio. The competing VaR forecasts are analysed using the Unconditional Coverage, Serial Independence and Conditional Coverage tests of Christoffersen [Christoffersen (1998), "Evaluating Interval Forecasts", International Economic Review, 39, 841-862], and the Time Until First Failure Test of Kupiec [Kupiec, P.H., (1995), "Techniques for Verifying the Accuracy of Risk Measurements Models", Journal of Derivatives, 73-84]. The results offer mild support for the DCC model over its constant conditional correlation counterpart. |
| first_indexed | 2025-11-14T08:26:30Z |
| format | Journal Article |
| id | curtin-20.500.11937-32080 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T08:26:30Z |
| publishDate | 2008 |
| publisher | Elsevier BV |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-320802017-09-13T15:52:04Z Evaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares Da Veiga, Bernardo Chan, Felix McAleer, M. VaR Chinese stock markets Value-at-Risk Dynamic conditional correlation China A and B shares Market reform This paper analyses the time-varying conditional correlations between Chinese A and B share returns using the Dynamic Conditional Correlation (DCC) model of Engle [Engle, R.F. (2002), "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models", Journal of Business and Economic Statistics, 20, 339-350.]. The results show that the conditional correlations increased substantially following the B share market reform, whereby Chinese investors were permitted to purchase B shares. However, this increase in correlations was found to have begun well before the B share market reform. This result has significant implication relating to the structure of the information flow between the markets for the two classes of shares. Value-at-Risk (VaR) threshold forecasts are used to analyse the importance of accommodating dynamic conditional correlations between Chinese A and B shares, and thus reflects the impact of the changes in information flow on the risk evaluation of a diversified portfolio. The competing VaR forecasts are analysed using the Unconditional Coverage, Serial Independence and Conditional Coverage tests of Christoffersen [Christoffersen (1998), "Evaluating Interval Forecasts", International Economic Review, 39, 841-862], and the Time Until First Failure Test of Kupiec [Kupiec, P.H., (1995), "Techniques for Verifying the Accuracy of Risk Measurements Models", Journal of Derivatives, 73-84]. The results offer mild support for the DCC model over its constant conditional correlation counterpart. 2008 Journal Article http://hdl.handle.net/20.500.11937/32080 10.1016/j.pacfin.2007.08.001 Elsevier BV fulltext |
| spellingShingle | VaR Chinese stock markets Value-at-Risk Dynamic conditional correlation China A and B shares Market reform Da Veiga, Bernardo Chan, Felix McAleer, M. Evaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares |
| title | Evaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares |
| title_full | Evaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares |
| title_fullStr | Evaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares |
| title_full_unstemmed | Evaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares |
| title_short | Evaluating the impact of market reforms on Value-at-Risk forecasts of Chinese A and B shares |
| title_sort | evaluating the impact of market reforms on value-at-risk forecasts of chinese a and b shares |
| topic | VaR Chinese stock markets Value-at-Risk Dynamic conditional correlation China A and B shares Market reform |
| url | http://hdl.handle.net/20.500.11937/32080 |