Matrix GARCH Model: Inference and Application

Cheng Yu, Dong Li, Feiyu Jiang and Ke Zhu

Journal of the American Statistical Association, 2025, vol. 120, issue 551, 1747-1762

Abstract: Matrix-variate time series data are largely available in applications. However, no attempt has been made to study their conditional heteroscedasticity that is often observed in economic and financial data. To address this gap, we propose a novel matrix generalized autoregressive conditional heteroscedasticity (GARCH) model to capture the dynamics of conditional row and column covariance matrices of matrix time series. The key innovation of the matrix GARCH model is the use of a univariate GARCH specification for the trace of conditional row or column covariance matrix, which allows for the model identification. Moreover, we introduce a quasi-maximum likelihood estimator (QMLE) for model estimation and develop a portmanteau test for model diagnostic checking. Simulation studies are conducted to assess the finite-sample performance of the QMLE and portmanteau test. To handle large dimensional matrix time series, we also propose a matrix factor GARCH model, and establish its theoretical properties. Finally, we demonstrate the superiority of the matrix GARCH and matrix factor GARCH models over existing multivariate GARCH-type models in volatility forecasting and portfolio allocations using three applications on credit default swap prices, global stock sector indices, and future prices. Supplementary materials for this article are available online, including a standardized description of the materials available for reproducing the work.

Date: 2025
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DOI: 10.1080/01621459.2024.2415719

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