A Multivariate GARCH Model with Time-Varying correlations

Y. K. Tse () and Albert Tsui

Econometrics from University Library of Munich, Germany

Abstract: In this paper we propose a new multivariate GARCH model with time- varying correlations. We adopt the vech representation based on the conditional variances and the conditional correlations. While each conditional-variance term is assumed to follow a univariate GARCH formulation, the conditional-correlation matrix is postulated to follow an autoregressive moving average type of analogue. By imposing some suitable restrictions on the conditional-correlation-matrix equation, we construct a MGARCH model in which the conditional-correlation matrix is guaranteed to be positive definite during the optimisation. Thus, our new model retains the intuition and interpretation of the univariate GARCH model and yet satisfies the positive-definite condition as found in the constant-correlation and BEKK models. We report some Monte Carlo results on the finite-sample distributions of the MLE of the varying- correlation MGARCH model. The new model is applied to some real data sets. It is found that extending the constant-correlation model to allow for time-varying correlations provides some interesting time histories that are not available in a constant-correlation model.

Keywords: BEKK model; constant correlation; Monte Carlo method; multivariate GARCH model; maximum likelihood estimate; varying correlation (search for similar items in EconPapers)
JEL-codes: C12 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2000-11-18
Note: Type of Document - PDF; prepared on PC; to print on Postscript; pages: 30; figures: included
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/em/papers/0004/0004010.pdf (application/pdf)

Related works:
Working Paper: A Multivariate GARCH Model with Time-Varying Correlations (2000)
Working Paper: A Multivariate GARCH Model with Time-Varying Correlations (2000)
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:wpa:wuwpem:0004010

Access Statistics for this paper

More papers in Econometrics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).