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Thresholds, News Impact Surfaces and Dynamic Asymmetric Multivariate GARCH

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  • Massimiliano Caporin

    (Department of Economic Sciences, University of Padova)

  • Michael McAleer

    (Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute)

Abstract

DAMGARCH is a new model that extends the VARMA-GARCH model of Ling and McAleer (2003) by introducing multiple thresholds and time-dependent structure in the asymmetry of the conditional variances. Analytical expressions for the news impact surface implied by the new model are also presented. DAMGARCH models the shocks affecting the conditional variances on the basis of an underlying multivariate distribution. It is possible to model explicitly asset-specific shocks and common innovations by partitioning the multivariate density support. This paper presents the model structure, describes the implementation issues, and provides the conditions for the existence of a unique stationary solution, and for consistency and asymptotic normality of the quasimaximum likelihood estimators. The paper also presents an empirical example to highlight the usefulness of the new model.

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Bibliographic Info

Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-217.

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Length: 52 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:cfi:fseres:cf217

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  1. BAUWENS, Luc & LAURENT, Sébastien & ROMBOUTS, Jeroen VK, . "Multivariate GARCH models: a survey," CORE Discussion Papers RP -1847, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Massimiliano Caporin & Michael McAleer, 2006. "Dynamic Asymmetric GARCH," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(3), pages 385-412.
  3. Ling, Shiqing & McAleer, Michael, 2003. "Asymptotic Theory For A Vector Arma-Garch Model," Econometric Theory, Cambridge University Press, vol. 19(02), pages 280-310, April.
  4. Shiqing Ling & Michael McAleer, 2001. "Necessary and Sufficient Moment Conditions for the GARCH(r,s) and Asymmetric Power GARCH(r,s) Models," ISER Discussion Paper 0534, Institute of Social and Economic Research, Osaka University.
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  6. Shiqing Ling & Michael McAleer, 2001. "Stationarity and the Existence of Moments of a Family of GARCH Processes," ISER Discussion Paper 0535, Institute of Social and Economic Research, Osaka University.
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Cited by:
  1. Jeroen V.K. Rombouts & Lars Stentoft & Francesco Violante, 2012. "The Value of Multivariate Model Sophistication: An Application to pricing Dow Jones Industrial Average options," CREATES Research Papers 2012-04, School of Economics and Management, University of Aarhus.
  2. Harin, Alexander, 2014. "General correcting formulae for forecasts," MPRA Paper 55283, University Library of Munich, Germany.
  3. Xiuping Mao & Esther Ruiz & Helena Veiga, 2013. "One for all : nesting asymmetric stochastic volatility models," Statistics and Econometrics Working Papers ws131110, Universidad Carlos III, Departamento de Estadística y Econometría.

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