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GO-GARCH: a multivariate generalized orthogonal GARCH model

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  • Roy van der Weide

    (Department of Economics, CeNDEF, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands)

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    Abstract

    Multivariate GARCH specifications are typically determined by means of practical considerations such as the ease of estimation, which often results in a serious loss of generality. A new type of multivariate GARCH model is proposed, in which potentially large covariance matrices can be parameterized with a fairly large degree of freedom while estimation of the parameters remains feasible. The model can be seen as a natural generalization of the O-GARCH model, while it is nested in the more general BEKK model. In order to avoid convergence difficulties of estimation algorithms, we propose to exploit unconditional information first, so that the number of parameters that need to be estimated by means of conditional information is more than halved. Both artificial and empirical examples are included to illustrate the model. Copyright © 2002 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/jae.688
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

    Volume (Year): 17 (2002)
    Issue (Month): 5 ()
    Pages: 549-564

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    Handle: RePEc:jae:japmet:v:17:y:2002:i:5:p:549-564

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    1. Shiqing Ling & Michael McAleer, 2001. "Asymptotic Theory for a Vector ARMA-GARCH Model," ISER Discussion Paper 0549, Institute of Social and Economic Research, Osaka University.
    2. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
    3. Y.K. Tse & Albert K.C. Tsui, 2000. "A Multivariate GARCH Model with Time-Varying Correlations," Econometrics 0004007, EconWPA.
    4. Drost, F.C. & Nijman, T.E., 1992. "Temporal Aggregation of Garch Processes," Papers 9240, Tilburg - Center for Economic Research.
    5. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    6. Klaassen, F.J.G.M., 1999. "Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model," Discussion Paper 1999-10, Tilburg University, Center for Economic Research.
    7. Robert F. Engle & Victor Ng & Michael Rothschild, 1988. "Asset Pricing with a Factor Arch Covariance Structure: Empirical Estimates for Treasury Bills," NBER Technical Working Papers 0065, National Bureau of Economic Research, Inc.
    8. Tse, Y. K., 2000. "A test for constant correlations in a multivariate GARCH model," Journal of Econometrics, Elsevier, vol. 98(1), pages 107-127, September.
    9. repec:cup:etheor:v:11:y:1995:i:1:p:122-50 is not listed on IDEAS
    10. Kroner, Kenneth F & Ng, Victor K, 1998. "Modeling Asymmetric Comovements of Asset Returns," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 817-44.
    11. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    12. F. Comte & Offer Lieberman, 2001. "Asymptotic Theory for Multivariate GARCH Processes," Cowles Foundation Discussion Papers 1349, Cowles Foundation for Research in Economics, Yale University.
    13. Y. K. Tse, 2002. "Residual-based diagnostics for conditional heteroscedasticity models," Econometrics Journal, Royal Economic Society, vol. 5(2), pages 358-374, 06.
    14. Jeantheau, Thierry, 1998. "Strong Consistency Of Estimators For Multivariate Arch Models," Econometric Theory, Cambridge University Press, vol. 14(01), pages 70-86, February.
    15. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
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