Linear time-varying regression with copula–DCC–asymmetric–GARCH models for volatility: the co-movement between industrial electricity demand and financial factors
- Authors
- Kim, Yunsun; Hwang, Sun-Young; Kim, Jong-Min; Kim, Sahm
- Issue Date
- Jan-2023
- Publisher
- Routledge
- Keywords
- C22; Copula; dynamic conditional correlation; E43; E44; GARCH; time-Varying correlation; volatility
- Citation
- Applied Economics, v.55, no.3, pp 255 - 272
- Pages
- 18
- Journal Title
- Applied Economics
- Volume
- 55
- Number
- 3
- Start Page
- 255
- End Page
- 272
- URI
- https://scholarworks.bwise.kr/cau/handle/2019.sw.cau/60655
- DOI
- 10.1080/00036846.2022.2086684
- ISSN
- 0003-6846
1466-4283
- Abstract
- This paper examines the dependence structure of industrial electricity demand and financial indicators (the Korea Composite Stock Price Index [KOSPI], Korean Securities Dealers Automated Quotations [KOSDAQ], exchange rate, government bonds and exports) using the copula dynamic conditional correlation with symmetric and asymmetric generalized autoregressive conditional heteroscedasticity (GARCH) models to forecast volatility. We investigated symmetric and asymmetric GARCH types, such as the standard, exponential, Glosten–Jagannathan–Runkle and asymmetric power models to fit the marginal distribution. The two types of elliptical copula, Gaussian and Student’s t-distributions, were also considered to investigate the tail dependence between financial and electricity time series. We analysed the monthly log returns for January 2002 to April 2020. The empirical results reveal that the best-fit models for the Akaike information criteria are the asymmetric GARCH models, specifically the exponential-GARCH (E-GARCH). Moreover, the asymmetric GARCH model is superior to the symmetric GARCH in terms of forecast volatility. Extreme tail dependence exists for the KOSDAQ and exports indicators with the electricity demand. The KOSPI, Korea’s primary stock market, is the best-fit financial variable and presents the highest forecasting accuracy. © 2022 Informa UK Limited, trading as Taylor & Francis Group.
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