A parsimonious test of constancy of a positive definite correlation matrix in a multivariate time-varying GARCH model

Jian Kang, Johan Stax Jakobsen (), Annastiina Silvennoinen (), Timo Teräsvirta and Glen Wade ()
Additional contact information
Jian Kang: School of Finance, Dongbei University of Finance and Economics
Johan Stax Jakobsen: Copenhagen Business School and CREATES, Postal: Solbjerg Plads 3, 2000 Frederiksberg, Denmark
Annastiina Silvennoinen: NCER, Queensland University of Technology
Glen Wade: NCER, Queensland University of Technology

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We construct a parsimonious test of constancy of the correlation matrix in the multivariate conditional correlation GARCH model, where the GARCH equations are time-varying. The alternative to constancy is that the correlations change deterministically as a function of time. The alternative is a covariance matrix, not a correlation matrix, so the test may be viewed as a general test of stability of a constant correlation matrix. The size of the test in finite samples is studied by simulation. An empirical example is given.

Keywords: Deterministically varying correlation; multiplicative time-varying GARCH; multivariate GARCH; nonstationary volatility; smooth transition GARCH (search for similar items in EconPapers)
JEL-codes: C32 C52 C58 (search for similar items in EconPapers)
Pages: 49
Date: 2022-01-01
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-ore and nep-rmg
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Citations: View citations in EconPapers (1)

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Journal Article: A Parsimonious Test of Constancy of a Positive Definite Correlation Matrix in a Multivariate Time-Varying GARCH Model (2022)
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