Modeling dependence structure in size-sorted portfolios: A Structural Multivariate GARCH Model

No 55, Econometric Society 2004 Australasian Meetings from Econometric Society

Abstract: A new model is developed that augments a structural VAR specification with a GARCH covariance matrix. The model is utilised to study time series dependencies between three size-sorted portfolios from the Australian Stock Exchange. Even after accounting for contemporaneous correlations the returns on small and medium firm portfolios are found to lag the large firm portfolio returns. An asymmetric lag structure is also found in the structural variance equations. The evidence is consistent with the Lo and MacKinlay (1990) lead-lag effect and the volatility spill-over hypothesis of Condrad, Gultekin and Kaul (1991).

Keywords: Heteroschedasticity; Simultaneous Equations; Multivariate GARCH; Size-Sorted Portfolios; Conditional Impulse Responses; Conditional Variance Decomposition (search for similar items in EconPapers)
JEL-codes: C30 C32 G10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-fin
Date: Written 2004-08-11
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