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Dynamic Conditional Eigenvalue GARCH

Simon Hetland, Rasmus Søndergaard Pedersen and Anders Rahbek
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Simon Hetland: Department of Economics, University of Copenhagen, Denmark
Rasmus Søndergaard Pedersen: Department of Economics, University of Copenhagen, Denmark
Anders Rahbek: Department of Economics, University of Copenhagen, Denmark

No 19-13, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: In this paper we consider a multivariate generalized autoregressive conditional heteroskedastic (GARCH) class of models where the eigenvalues of the conditional covariance matrix are time-varying. The proposed dynamics of the eigenvalues is based on applying the general theory of dynamic conditional score models as proposed by Creal, Koopman and Lucas (2013) and Harvey (2013). We denote the obtained GARCH model with dynamic conditional eigenvalues (and constant conditional eigenvectors) as the ?-GARCH model. We provide new results on asymptotic theory for the Gaussian QMLE, and for testing of reduced rank of the (G)ARCH loading matrices of the time-varying eigenvalues. The theory is applied to US data, where we ?find that the eigenvalue structure can be reduced similar to testing for the number in factors in volatility models.

Keywords: Multivariate GARCH; GO-GARCH; Reduced Rank; Asymptotic Theory (search for similar items in EconPapers)
JEL-codes: C32 C51 C58 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2019-12-17
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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