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Modelling Multivariate Autoregressive Conditional Heteroskedasticity with the Double Smooth Transition Conditional Correlation GARCH model Author info | Abstract | Publisher info | Download info | Related research | Statistics Silvennoinen, Annastiina () (School of Finance and Economics)
Teräsvirta, Timo () (CREATES)
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In this paper we propose a multivariate GARCH model with a time-varying conditional correlation structure. The new Double Smooth Transition Conditional Correlation GARCH model extends the Smooth Transition Conditional Correlation GARCH model of Silvennoinen and Teräsvirta (2005) by including another variable according to which the correlations change smoothly between states of constant correlations. A Lagrange multiplier test is derived to test the constancy of correlations against the DSTCC-GARCH model, and another one to test for another transition in the STCC-GARCH framework. In addition, other specification tests, with the aim of aiding the model building procedure, are considered. Analytical expressions for the test statistics and the required derivatives are provided. The model is applied to a selection of world stock indices, and it is found that time is an important factor affecting correlations between them.
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Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number
0652.
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Length: 28 pages
Date of creation: 01 Feb 2007Date of revision:
Publication status: Published in Journal of Financial Econometrics, 2009, pages 373-411.Handle: RePEc:hhs:hastef:0652Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden Phone: +46-(0)8-736 90 00 Fax: +46-(0)8-31 01 57 Email: Web page: http://www.hhs.se/ More information through EDIRC
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Keywords: Multivariate GARCH ; Constant conditional correlation ; Dynamic conditional correlation ; Return comovement ; Variable correlation GARCH model ; Volatility model evaluation ; Other versions of this item:
Find related papers by JEL classification: C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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Christian Conrad & Menelaos Karanasos, 2008.
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