Abstract
Using an econometric methodology from [Cappiello, Lorenzo, Robert F. Engle, and Kevin Sheppard. 2006. “Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns.” Journal of Financial Econometrics 4 (4): 537–572.], we evaluate time-varying correlations between multiple asset classes using an asymmetric-DCC GARCH model. Specifically, we focus on the changes in these correlations during quantitative easing. We then use these conditional correlations, along with conditional means and variances to find optimal investment portfolios using Markowitz mean-variance minimization. Lastly, we compute time-varying Sharpe ratios. Our results show increasing Sharpe ratios during the period of quantitative easing which suggests that the Federal Reserve’s programs were successful in increasing returns and minimizing risk – i.e. volatility – across several asset classes during the financial crisis.
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Supplemental Material
The online version of this article offers supplementary material (DOI: https://doi.org/10.1515/snde-2016-0083).
©2018 Walter de Gruyter GmbH, Berlin/Boston
Articles in the same Issue
- Introduction: Special Issue Honoring the Contributions of Walter Enders
- Improving likelihood-ratio-based confidence intervals for threshold parameters in finite samples
- Nonlinear Taylor rules: evidence from a large dataset
- Flexible Fourier form for volatility breaks
- Nonlinear evidence on the existence of jobless recoveries
- Public debt and economic growth conundrum: nonlinearity and inter-temporal relationship
- Examining the success of the central banks in inflation targeting countries: the dynamics of the inflation gap and institutional characteristics
- Evaluating the impact of the labor market conditions index on labor market forecasts
- Time-varying correlations and Sharpe ratios during quantitative easing
- Testing for a unit root against ESTAR stationarity
Articles in the same Issue
- Introduction: Special Issue Honoring the Contributions of Walter Enders
- Improving likelihood-ratio-based confidence intervals for threshold parameters in finite samples
- Nonlinear Taylor rules: evidence from a large dataset
- Flexible Fourier form for volatility breaks
- Nonlinear evidence on the existence of jobless recoveries
- Public debt and economic growth conundrum: nonlinearity and inter-temporal relationship
- Examining the success of the central banks in inflation targeting countries: the dynamics of the inflation gap and institutional characteristics
- Evaluating the impact of the labor market conditions index on labor market forecasts
- Time-varying correlations and Sharpe ratios during quantitative easing
- Testing for a unit root against ESTAR stationarity