Negative Volatility Spillovers in the Unrestricted ECCC-GARCH Model

Christian Conrad and Menelaos Karanasos

No 08-189, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: This paper considers a formulation of the extended constant or time-varying conditional correlation GARCH model which allows for volatility feedback of either sign, i.e., positive or negative. In the previous literature, negative volatility spillovers were ruled out by the assumption that all the coefficients of the model are non-negative, 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.

Keywords: Inequality constraints; Multivariate GARCH processes; Volatility feedback (search for similar items in EconPapers)
Pages: 25 pages
Date: 2008-02
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://dx.doi.org/10.3929/ethz-a-005552237 (application/pdf)

Related works:
Journal Article: NEGATIVE VOLATILITY SPILLOVERS IN THE UNRESTRICTED ECCC-GARCH MODEL (2010)
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:kof:wpskof:08-189

Access Statistics for this paper

More papers in KOF Working papers from KOF Swiss Economic Institute, ETH Zurich Contact information at EDIRC.
Bibliographic data for series maintained by ().