EconPapers    
Economics at your fingertips  
 

Modeling covariance breakdowns in multivariate GARCH

Xin Jin and John Maheu ()

Journal of Econometrics, 2016, vol. 194, issue 1, pages 1-23

Abstract: This paper proposes a flexible way of modeling dynamic heterogeneous covariance breakdowns in multivariate GARCH models through a stochastic component that allows for changes in the conditional variances, covariances and implied correlation coefficients. Different breakdown periods will have different impacts on the conditional covariance matrix and are estimated from the data. We propose an efficient Bayesian posterior sampling procedure and show how to compute the marginal likelihood. Applied to daily stock market and bond market data, we identify a number of different covariance breakdowns which leads to a significant improvement in the marginal likelihood and gains in portfolio choice.

Keywords: Correlation breakdown; Marginal likelihood; Particle filter; Markov chain; Generalized variance (search for similar items in EconPapers)
JEL-codes: C32 C51 C58 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304407616300562
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Modeling Covariance Breakdowns in Multivariate GARCH (2014) Downloads
Working Paper: Modeling Covariance Breakdowns in Multivariate GARCH (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:econom:v:194:y:2016:i:1:p:1-23

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2017-03-05
Handle: RePEc:eee:econom:v:194:y:2016:i:1:p:1-23