The paper investigates the interdependence and conditional correlations between
futures contracts and their underlying assets, both for stock and bond markets, and the
impact of the interdependence and conditional correlations on VaR forecasts. The
paper finds evidence of volatility spillovers from spot (futures) to futures (spot)
markets, and time-varying conditional correlations between futures and their
underlying assets. It also finds evidence that the DCC model of Engle (2002) provides
slightly better VaR forecasts as compared with the CCC model of Bollerslev (1990)
and the BEKK model of Engle and Kroner (1995). |