Template-type: ReDIF-Paper 1.0
Author-Name: Massimiliano Caporin 
Author-Email: massimiliano.caporin@unipd.it
Author-Person: pca441
Author-Workplace-Name: Dipartimento di Scienze Economiche "Marco Fanno" (Department of Economics and Management), 
	Università degli Studi di Padova (University of Padua
Author-Workplace-Homepage: http://www.decon.unipd.it/
Author-Name: Michael McAleer
Author-Person: pmc90 
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute,
	The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of
	Economic Research, Kyoto University. 
Title: Ten Things You Should Know About DCC
Abstract: The purpose of the paper is to discuss ten things potential users should know about the limits of the 
	Dynamic Conditional Correlation (DCC) representation for estimating and forecasting time-varying conditional 
	correlations. The reasons given for caution about the use of DCC include the following: DCC represents the 
	dynamic conditional covariances of the standardized residuals, and hence does not yield dynamic conditional 
	correlations; DCC is stated rather than derived; DCC has no moments; DCC does not have testable regularity 
	conditions; DCC yields inconsistent two step estimators; DCC has no asymptotic properties; DCC is not a 
	special case of GARCC, which has testable regularity conditions and standard asymptotic properties; DCC is 
	not dynamic empirically as the effect of news is typically extremely small; DCC cannot be distinguished 
	empirically from diagonal BEKK in small systems; and DCC may be a useful filter or a diagnostic check, but 
	it is not a model.
Classification-JEL: C18, C32, C58, G17.
Keywords: DCC, BEKK, GARCC, Stated representation, Derived model, Conditional covariances, Conditional correlations, 
	Regularity conditions, Moments, Two step estimators, Assumed properties, Asymptotic properties, Filter, 
	Diagnostic check.
Length: 18 pages 
Creation-Date: 2013-03
Number: 2013-12 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1312.txt
File-URL: https://eprints.ucm.es/id/eprint/20494/1/1312.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1312