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Modeling dependence structure in size-sorted portfolios: A Structural Multivariate GARCH Model

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  • George Milunovich

Abstract

A new model is developed that augments a structural VAR specification with a GARCH covariance matrix. The model is utilised to study time series dependencies between three size-sorted portfolios from the Australian Stock Exchange. Even after accounting for contemporaneous correlations the returns on small and medium firm portfolios are found to lag the large firm portfolio returns. An asymmetric lag structure is also found in the structural variance equations. The evidence is consistent with the Lo and MacKinlay (1990) lead-lag effect and the volatility spill-over hypothesis of Condrad, Gultekin and Kaul (1991).

Suggested Citation

  • George Milunovich, 2004. "Modeling dependence structure in size-sorted portfolios: A Structural Multivariate GARCH Model," Econometric Society 2004 Australasian Meetings 55, Econometric Society.
    • Handle: RePEc:ecm:ausm04:55
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    File URL: http://repec.org/esAUSM04/up.6226.1076301814.pdf
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    Cited by:

    1. Vargas, Gregorio A., 2006. "An Asymmetric Block Dynamic Conditional Correlation Multivariate GARCH Model," MPRA Paper 189, University Library of Munich, Germany, revised Aug 2006.

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    More about this item

    Keywords

    Heteroschedasticity; Simultaneous Equations; Multivariate GARCH; Size-Sorted Portfolios; Conditional Impulse Responses; Conditional Variance Decomposition;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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