NEGATIVE VOLATILITY SPILLOVERS IN THE UNRESTRICTED ECCC-GARCH MODEL

Christian Conrad and Menelaos Karanasos

Econometric Theory, 2010, vol. 26, issue 3, 838-862

Abstract: This paper considers a formulation of the extended constant or time-varying conditional correlation GARCH model that allows for volatility feedback of either the positive or negative sign. In the previous literature, negative volatility spillovers were ruled out by the assumption that all the parameters of the model are nonnegative, which is a sufficient condition for ensuring the positive definiteness of the conditional covariance matrix. In order to allow for negative feedback, we show that the positive definiteness of the conditional covariance matrix can be guaranteed even if some of the parameters are negative. Thus, we extend the results of Nelson and Cao (1992) and Tsai and Chan (2008) to a multivariate setting. For the bivariate case of order one, we look into the consequences of adopting these less severe restrictions and find that the flexibility of the process is substantially increased. Our results are helpful for the model-builder, who can consider the unrestricted formulation as a tool for testing various economic theories.

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (45)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
Working Paper: Negative Volatility Spillovers in the Unrestricted ECCC-GARCH Model (2008)
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: https://EconPapers.repec.org/RePEc:cup:etheor:v:26:y:2010:i:03:p:838-862_99

Access Statistics for this article

More articles in Econometric Theory from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().