Bayesian comparison of bivariate Copula-GARCH and MGARCH models

Justyna Mokrzycka ()
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Justyna Mokrzycka: Warsaw School of Economics

Central European Journal of Economic Modelling and Econometrics, 2019, vol. 11, issue 1, 47-71

Abstract: The aim of the study is to formally compare the explanatory power of Copula-GARCH and MGARCH models. The models are estimated for logarithmic daily rates of return of two exchange rates: EUR/PLN, USD/PLN and stock market indices: SP500, BUX. The analysis is performed within the Bayesian framework. The posterior model probabilities point to AR(1)-tSBEKK(1,1) for the exchange rates and VAR(1)-tCopula-GARCH(1,1) for the stock market indices, as the superior specifications. If the marginal sampling distributions are different in terms of tail thickness, the Copula-GARCH models have higher explanatory power than the MGARCH models.

Keywords: Bayesian model comparison; Copula-GARCH model; Multivariate GARCH model; Monte Carlo Importance Sampling (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:11:y:2019:i:1:p:47-71

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