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 the Dynamic Conditional Correlation Representation
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 representation, BEKK, GARCC, Stated representation, Derived model, Conditional covariances, Conditional 
	correlations, regularity conditions, moments, two step estimators, Assumed properties, Asymptotic properties, 
	filter, Diagnostic check.

Note: The authors most are grateful to two referees for very helpful comments and suggestions. For 
	financial support, the second author wishes to acknowledge the Australian Research Council, 
	National Science Council, Taiwan, and the Japan Society for the Promotion of Science. An 
	earlier version of this paper was distributed as “Ten Things You Should Know About DCC”. 
Length: 18 pages 
Creation-Date: 2013-06  
Number: 2013-21  
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1321.txt
File-URL: https://eprints.ucm.es/id/eprint/22109/1/1321.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1321