Positivity Constraints on the Conditional Variances in the Family of Conditional Correlation GARCH Models
AbstractIn this article, we derive a set of necessary and sufficient conditions for positivity of the vector conditional variance equation in multivariate GARCH models with explicit modelling of conditional correlation. These models include the constant conditional correlation GARCH model of Bollerslev (1990) and its extensions. Under the new conditions, it is possible to introduce negative volatility spillovers in the model. An empirical example illustrates usefulness of having such conditions in practice.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 675.
Length: 10 pages
Date of creation: 15 Oct 2007
Date of revision: 15 Nov 1007
Publication status: Published in Finance Research Letters, 2008, pages 88-95.
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Multivariate GARCH; positivity constraints; conditional correlation;
Other versions of this item:
- Nakatani, Tomoaki & Teräsvirta, Timo, 2008. "Positivity constraints on the conditional variances in the family of conditional correlation GARCH models," Finance Research Letters, Elsevier, vol. 5(2), pages 88-95, June.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- G19 - Financial Economics - - General Financial Markets - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-24 (All new papers)
- NEP-ECM-2007-11-24 (Econometrics)
- NEP-ETS-2007-11-24 (Econometric Time Series)
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